Many South African investors believe they are diversified because they invest in a broad-market index, such as the FTSE/JSE All Share Index (ALSI), or a large-cap index like the Top40 (FNBT40-JSE). In reality, they may be taking far more concentrated risk than they realise.
As Africa’s largest and most technologically advanced stock exchange, the Johannesburg Stock Exchange (JSE) is a world-class, trusted platform for DIY investors to get their share of local markets and the country’s best companies.
However, when investing on the JSE, retail investors must understand the implications that this structurally “top-heavy” exchange can have on portfolio risk.
While index investing is generally considered a good diversification strategy because it spreads investments across different assets, industries, and regions, the specific composition of the JSE means that a passive approach may introduce greater concentration risk into portfolios.
As such, understanding the concentration inherent in the JSE is crucial for any investor seeking to move beyond basic “buy-and-hold” strategies toward more sophisticated portfolio construction.
The Impact on Portfolio Risk
While stock exchanges offer a range of companies, sectors, and themes, the JSE is heavily weighted to a few large-cap stocks, with the top five – Prosus (PRX-JSE), BHP Group (BHG-JSE), Anheuser-Busch InBev (ANH-JSE), British American Tobacco (BAT-JSE), and Richemont (CFR-JSE) – accounting for roughly half of the total market capitalisation. When you combine the top 20, that figure rises to 80%.
When 80% of market capitalisation sits in the top 20 shares, index investors are effectively making a macro bet on a narrow set of companies, sectors, and economic drivers, whether they intend to or not.
Sector Overlap: When Different Shares Behave the Same
For example, the resources sector is driven by global demand for platinum group metals (PGMs), gold, iron ore, and coal. Because these companies are “price takers” – their revenue depends on global commodity prices they cannot control – this sector introduces high volatility linked to the global business cycle.
South Africa’s “Big Five” banks and major insurers also represent a massive portion of the JSE. This sector is highly sensitive to the South African repo rate, domestic inflation, and sovereign credit ratings.
When these two sectors move in tandem, the entire index moves. Conversely, if one sector faces headwinds, it can drag down the performance of an entire “diversified” South African portfolio.
The Hidden Cost of Staying Local
The problem is amplified by a shrinking number of listings on the JSE, with roughly 430 companies listed on the exchange as of January 2026, down from over 770 three decades ago.
Moreover, the JSE is notably light on high-growth sectors, such as AI and broader tech stocks, biotechnology, and renewable energy. Relying solely on the local index means missing out on these prominent structural growth drivers of the modern global economy.
Strategic Mitigation Tactics
To manage JSE concentration risk effectively, investors should consider a more nuanced approach to asset allocation.
Utilising a low-cost JSE index fund as your portfolio foundation provides good exposure to the local economy and its main sectors.
Adding diversification through investments in specific sector ETFs or individual stocks can provide exposure to under-represented industries, like healthcare or technology, with a focus on offshore diversification.
Allocating capital to global markets via indexes like the S&P 500 (VOO-NASQ), Euro Stoxx (FEZ-NASQ), or MSCI World (IWRDL-TRQX)), reduces your dependency on the SA mining and banking cycles, while providing broader exposure to sectors that do not exist in meaningful size on the JSE.
