The CAC 40 is a French stock market index. The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the Euronext Paris. It is one of the main national indices of the European stock exchange group Euronext, together with Brussels’ BEL20, Lisbon’s PSI-20 and Amsterdam’s AEX.
France CAC 40 Stock Market Index Chart
The CAC 40 took its name from the Paris Bourse’s early automation system Cotation Assistée en Continu (Continuous Assisted Quotation). On December 31, 1987, its base value of 1,000 was set which has an equivalent to a market capitalization of 370,437,433,957.70 French francs.
On 1 December 2003, the index's weighting system switched from being dependent on total market capitalization to free float market cap only, in line with other leading indices.
The benchmark index gets screened by factors like liquidity, trading activity, balance sheet size, and market capitalisation.
The popularity of the index gets bolstered by the high returns it offers in quick successions to investors. CAC 40 provides the citation to the idea of growth or loss to speculators and market players. And its reach in multiple nations is the icing on the cake.
Review CAC 40
The index shares many similarities with Dow Jones Industrial Average. The French index also demonstrates the direction of France's market. Also, experts and trade pundits use it generally to find the overall level of the market. DJIA does the same for the American Financial market.
Some of the notable companies in CAC 40 are:
- France Telecom
- Total SA
- BNP Paribas SA
- Cap Gemini
- Saint Gobain
- Worldline SA
- Pernod Ricard
The companies represent an array of domains and streams of France and other nations like:
- Consumer Cyclical
- Real Estate
- Communication services
- Consumer defensive
- Basic materials
Notably, the industrial sector has the biggest stake out of all. It takes up almost one-third of the total index. On the contrary, real estate has the least volumes.
A roller-coaster ride of CAC 40
In 2000, the CAC 40 leapt to its all-time high powered by dot com bubble that bludgeoned during the time. Transactions started to become digital, and market participants shifted to the internet medium out of curiosity. After finding it convenient to use, traders began their transactions through it.
The index reached near 7000. It hovered around it for several years. However, in 2011, it experienced the biggest fall and got reduced to around 3000 points. It was significantly hit by the global economic crisis phenomenon.
Today, the market is circling between 5000-6000 despite the European economies not living up to the mark. Also, the Coronavirus COVID-19 has hampered the growth. Investors are hitching from making an investment in a highly unpredictable market.
Traders, who are targeting larger areas besides those offered by CAC 40 have an option of CAC Mid 60 and CAC Next 20 as the spin-off.
What is the way to invest in the CAC 40 index?
There are people who wish to trade in international companies for drawing bigger profits and exposure. CAC 40 index can help them do that. Participants can use the ETF (Exchange-traded funds) technique. It can assist them for trading on NYSE Euronext Paris.
ADRs (American Depository Receipts) are useful to investors and traders in purchasing individual components. Also, market players have the option of purchasing on the Euronext Paris Exchange. They can buy foreign stocks here. Check the top CAC 4o ETFs:
- DBXT CAC 40 ETF
- Amundi CAC 40 ETF
- HSBC CAC 40 ETF
- Lyxor CAC 40 ETF
- EasyETF CAC 40 ETF
However, a participant must be cautious of several consequences and implications of taxes that come along with trading international stocks. There are currency risks while purchasing directly on the Euronext Paris exchange using an ETF.
Notably, ADRs come laced with liquidity risk. So, be cautious while trading through them in comparison to the European Union listed securities.
Alternatives to CAC 40
Acclaimed, learned or experienced traders who trade in the international market can find a few alternatives of CAC 40 ETFs in the financial market. Here, iShares MSCI France Index stands at the top of other options.
Many mutual funds also offer exposure to the best available French securities. One receives a diversified portfolio without indulging into the cost of building them along with time.
Some popular European ETFs are:
- SPDR DJ Euro STOXX50
- MSCI European ETF
- iShares S&P Europe 350 Index Fund
Word of caution for investors
While considering these exchange-traded funds, international traders should pay attention to factors of perils intertwined with expense ratio conjoined to concentration sectors. Seeking the lowest cost funds that are managed passively can effectively put investors in a lot of control of the market and profits. It can debar the possibility of losses in any circumstances. Also, it amplifies the returns by adjusting the risks involved in it.
Criteria of selection
Similar to some brokers like ROinvesting or 101investing, even CAC 40 has to go through a grind. It gets regulated by an established authority quite timely. To keep things transparent and open to scrutiny for everyone, an independent Index Steering Committee sees after the activities and of the index. It reviews their work on a quarterly basis. The companies listed on the Euronext Paris are ranked according to free float market capitalization and share turnover over the prior 12 months at each review date.
The share turnover for twelve months decides whether the stocks are worthy of remaining on the CAC 40 index. The review conducted helps in acknowledging the picture behind a company's fundamental strength.
It is noticeable that there are top hundred companies in the ranking, but for creating a class-apart benchmark, only the 40 best find their place in CAC 40.
The stratum sets a perfect pitch for portfolio management. For derivative products, it's heaven. People can catch up with higher rewards here.
If there are shares from a similar class, then the acceptance value would get accorded to the ones getting actively traded on the index exchange.
CAC 40 making impactful inroads
The index renowned for its cross-border exchange tradings has an enormous impact on traders from different regions simply because of the standards it has laid over the years. Euronext found its formation in the year 2000. Paris Stock exchange, Brussels stock exchange and Amsterdam stock exchange. The merger was accomplished in the year 2007. On the other hand, the NYSE formed NYSE Euronext subsequently. It released a ray of light for market enthusiasts.
There are six different nations for which the Euronext manages different exchanges. Additionally, the company enjoys the label of operating the most liquid financial group across the globe. Approximately, there are four thousand companies listed on it. The total market capitalisation for it is USD 30.5 trillion, which is the testimony of advances it is making each day.
The market capitalisation is valued in dollars because it is the standard and the most acceptable currency in the world. The overall outstanding shares of a company get valued by it.
Risk assessment method for CAC 40 index
The current market price of a company's share gets multiplied by overall outstanding shares for finding out the market cap, as investors and traders call it in the usual business terms.
The community of traders, investors, market players and experts use these figures for determining a company's potential, size and fundamentals. Also, they do not calculate the total asset numbers and their figures.
The technique helps in assessing the risk involved in trading. Besides, it lets you know which stock to buy on the CAC 40 index for better profit-making. Market investors can utilise the metric for knowing the differences and qualities of different companies.
Weighting on CAC 40 index
The CAC 40 is a capitalization-weighted index. The number of shares issued is used to calculate the market cap and thus the index weight of a company. Since December 2003, the weightings of the companies have remained capped at fifteen per cent. For this, a capping factor came into the picture. It helps in limiting it. On the third Friday of a month, it gets reviewed by a committee.
Guide for trading CAC 40
Every financial market trades with the application of strategies, which enhances the power of trading. If things go as per the planning, then there are various return making chances that build up steadily for investors. Here are some:
Chalk out the needs: Before placing the dices of fortunes of the CAC40 in the market, check your requirements and funds. In a first, evaluate whether you are an intraday trader or one who takes a long position because strategies would change entirely.
While trading in a day, a person or a trader has to monitor the market by the passing second. Fortune alters with every moment. But once the person seeks the delivery, it is easy to track. Even if the market plunges, one can wait and check before taking a drastic decision. Also, when things aren't going in favour, there is no need to go helter-skelter.
One should know what does matter them the most; dividends or high returns, because there are different stocks serving to distinguish purposes.
Research technical indicators: Before investing in CAC 40 stocks, traders should do fundamental and technical analysis for the share they are looking to invest their money. Once the matter gets sorted, then pick up sundry tools and technical indicators for mapping the performance of sundry stocks. Some useful technical indicators are:-
- Breakout and reversal patterns. They help in examining the market and relatively the reaction of stock to it.
- Resistance and support levels
- Indicators like moving average are essential.
Working on the indicators above cast great benefits for financial market traders. However, discretion and situation of the market should be monitored by an investor.
Comfortable trading plan: Assessment of strategies before an investment is essential, because stocks of different sectors may perform differently as the demand and supply game is distinct for each of them. Dripping the capital into new form plans can chicken out possibilities of losses. Stay calm and composed and do not hesitate after the application of strategies. It takes time for the results to harvest. There's no overnight solution. Hence, going steadily will help you feel comfortable with the market theatrics and fetch you confidence over your plannings for stock purchasing and selling.
Risk Management factors: It is mindful of sorting out problems like risk-reward ratios, stop-loss levels, leverage levels, position-sizing, and other issues. The effort sets up a stage for bigger investments. Traders know the strengths and weaknesses of a stock and the market.
Trading sans risk management is akin to driving without a license. So, to avert any fine or a loss, get in place a strategy that can put aside peril.
Keep testing indicators: Relying too much on indicators may not be fruitful all the time. So, keeping a check on them timely can tell you whether they are applicable and conducive to the changing scenario or not.
You can put up a mock test period or assess the results for a few weeks. It will let you know which indicator suits your planning and investment. In the backtest, check the signal variations and fall that are happening over time. Test them by putting them in trading software. Also, you should introspect that is it possible for you to withstand a drubbing or not.
Check profitability factors: Every indicator has its limitations and which needs checking. See, whether they are profitable for the type of asset you are investing and what's the duration that it may require to offer you the profit.
Brokers for trading CAC40
The list includes any broker that can trade spread betting, CFDs, futures and options markets, DMA etc. deserves a chance from traders and investors. Some brokers that are fulfilling the criteria are Brokereo, HFTrading, Oinvest, 2invest, ETFinance, ROinvesting, 101investing, and several others.
Conclusion: CAC40 index from France is the box of hopes that inherits plenty of validated options for investments. The top 40 stocks in terms of market capitalisation. It guarantees decent returns in quick time. Also, the perils are lesser compared to other options.