The IBOVESPA is a major stock market index which tracks the performance of around 50 most liquid stocks traded on the Sao Paulo Stock Exchange in Brazil. It is a gross total return weighted index. The index has a base value of BRL 100 as of January 2, 1968. Since 1968, The Bovespa Index has been adjusted 11 times by a factor of 100 in 1983 and by factor of 10 in 1985, 1988, 1989, 1990, 1991, 1992, 1993, 1994, and 1997. Index has hit new record high levels of 76,977 on 13th October 2017 on the back of optimism about the recovery of Brazilian economy. Macro-economic data is also showing a double-digit increase in China’s imports in September 2017 boosted commodity prices, index heavy weight stocks have surged on the back of economic data which helped the broad index i.e. IBOVESPA to touch new record highs.
The Bovespa Index is the main indicator of the Brazilian stock market’s average performance. Ibovespa’s relevance comes from two facts: it reflects the variation of BOVESPA’s most traded stocks and it has tradition, having maintained the integrity of its historical series without any methodological change since its inception in 1968.
The index is the current value, in Brazilian currency, of a theoretical stock portfolio constituted in 02/01/1968 (base value: 100 points), by a hypothetical investment. No additional investment has been made since this date, apart from the reinvestment of the distributed benefits (such as dividends, subscription rights and stocks bonuses). The index reflects not only the variation of the stock prices but also the impact of the distribution of benefits, and is considered an indicator that evaluates the total return of its components stocks.
The index constituents are weighted by market value attributable to the free float per constituent (free float meaning shares or units outstanding and available for trading, as applicable) subject to a liquidity – based weight.
As measured at the reference date of any rebalancing, a constituent’s relative importance within the index must not be greater than two times the hypothetical weight of that constituent had it been weighted by the relative importance (weight value) of its individual tradability ratio (IN) vis-à-vis the sum total of tradability ratio for all the index constituents.
If this limit is breached, adjustments will be made to cap the relative weight of the relevant constituent at the above limit, with the surplus being proportionally redistributed amongst the other constituents.
Additionally, as measured at the time of inclusion in the index theoretical portfolio and at any subsequent rebalancing, the relative weight of a company’s contribution to the index (taking into account all types and classes of constituent shares or units representing shares, as applicable) must not exceed 20% of the weighting.
Criteria for Inclusion in the Portfolio
The Ibovespa theoretical portfolio is composed by the stocks that meet the following criteria, in regard to the last twelve months:
To be included in the group of stocks whose negotiability indexes added represent 80% of the total value of all individual negotiability indexes;
To have a trading value participation higher than 0, 1% of the total;
To have a trading session presence of more than 80%.
Criteria for Exclusion from the Portfolio
A stock selected to compose the portfolio will only be excluded when it no longer meets at least two of the criteria of inclusion.
It should be noted that companies that are in a regime of judicial reorganization, files for bankruptcy, are in a special situation or subject for a long period of trade suspension will not integrate Ibovespa.
If a company is no longer in any of these exceptional situations, its trading history shall begin to be counted – in order to meet the all of the criteria for inclusion in the portfolio – as of the date on which BM&FBOVESPA considers that the company has effectively come out of its exceptional situation.
The Bovespa Index has declined 11.64% on a year on year basis and 3.91% year to date. The index has a Price to Earnings ratio of 19 in the current scenario. The index reached an all-time high of 73,516 in the month of May 2008. The ITAU UNIBANCO has the highest weightage of 10.58% in the index followed by AMBEV with a weightage of 7.3%, BRADESCO with 6.91%, PETROBRAS with 4.4% and VALE at 3.6% while others have less than 3.6% weightage each in the index.