What is the CAC 40 and what does this stock market index represent?
Let us initially examine the major factors of the CAC 40 Index that you should know to be able to analyse this index correctly.
The CAC 40 is a French stock market Index which, as its name suggests, is composed of the top 40 French companies quoted on the Paris Euronext stock market. This index is therefore part of one of the leaders of the European financial marketplaces, Euronext, and alone represents over 80% of the French financial markets.
The companies of which the CAC 40 stock market index is composed are selected from among the top 100 French companies from different activity sectors that represent as objectively as possible the state and the health of the French economy.
From a historical point of view, we would note that the CAC 40 stock market index was created on the 31 December 1987 when its initial quote was for 1,000 points. It was the ‘Compagnie des Agents de Change’, hence the initials CAC, that created this index following the crash of 1987. However since then things have changed. The initials now represent the name ‘Cotation Assistée en Continu’ simply because the rate for this index is updated every 15 seconds during the opening hours from Monday to Friday, 9 a.m. to 5.30 p.m.
Of course, the list of companies represented on the CAC 40 Index changes over time, as with other international stock market indices. Certain companies exit this index and others with a higher stock market capital take their place.
However, certain particularly solid companies have been included in the CAC 40 since it was first created. These are as follows: Accor, Air Liquide, Carrefour, Danone, Lafarge-Holcim, l’Oreal, LVMH, Michelin, Saint Gobain, Sanofi, Société Générale and Vivendi. It should also be noted that since its creation 32 years ago, 94 French companies have at one time or another been included in this index.
How is the CAC 40 stock market index rate calculated?
Understanding the operation of the CAC 40 and its composition is clearly very important but it is also necessary to know how its rate is calculated. This is what we shall now explain.
To understand this method of calculation, it should first be remembered that in December 2003 the CAC 40 adopted a floating stock market capital calculation method that takes into account the number of shares available for purchase on the market by the quoted company. This modified method of calculation aims to be close to that used already for the major international stock market indices.
To summarise, the calculation of the CAC 40 rate is based on the stock market capital of the companies of which it is composed and it is obtained through the multiplication of the number of shares of each company on the market by the price of the shares.
Concerning the management of the CAC 40 index, notably the updates of the assets of which it is composed, it is the scientific Board of the Euronext stock market indices, composed of a number of independent experts of these stock market indices, that is responsible for these revisions and decides therefore which companies enter or exit this index with the aim of providing a fair representation. This board of eight independent experts from universities, industry and analysts meet every three months, on the third Friday in March, June, September, and December. When making their decisions they take into account the transaction volume of the company’s shares, the representation in the activity sectors on a national level, and the fluidity and regular trading of the assets.
What is the current composition of the CAC 40 stock market index?
As you have surely understood, to achieve pertinent and precise analyses of the CAC 40 index rate it is necessary to study the companies of which it is composed. The higher the stock market capital of these companies so the higher weight, or importance, they carry in this index. This is why we shall now list the 40 companies included in this index as at 14 January 2021, classified according to their capital, from the largest to the smallest.
- LVMH with a capital of 253.39 billion Euros.
- L’Oréal with a capital of 167.68 billion Euros.
- Sanofi with a capital of 100.16 billion Euros.
- Total with a capital of 99.47 billion Euros.
- Hermes International with a capital of 94.63 billion Euros.
- Airbus Group with a capital of 71.81 billion Euros.
- Kering with a capital of 71.42 billion Euros.
- Schneider Electric with a capital of 71.42 billion Euros.
- Air Liquide with a capital of 63.75 billion Euros.
- BNP Paribas with a capital of 56.6 billion Euros.
- Essilor Luxottica with a capital of 56.57 billion Euros.
- Vinci with a capital of 49.98 billion Euros.
- Axa with a capital of 48.61 billion Euros.
- Safran with a capital of 46.3 billion Euros.
- Dassault Systèmes with a capital of 43.51 billion Euros.
- Pernod Ricard with a capital of 41.21 billion Euros.
- Danone with a capital of 36.38 billion Euros.
- Engie with a capital of 33.46 billion Euros.
- Vivendi with a capital of 31.04 billion Euros.
- Crédit Agricole with a capital of 30.92 billion Euros.
- STMicroelectronics with a capital of 30.67 billion Euros.
- Orange with a capital of 26.23 billion Euros.
- Saint-Gobain with a capital of 23.04 billion Euros.
- Arcelormittal with a capital of 22.46 billion Euros.
- Legrand with a capital of 21.53 billion Euros.
- Capgemini with a capital of 21.17 billion Euros.
- Worldline with a capital of 21.13 billion Euros.
- PSA Groupe with a capital of 20.75 billion Euros.
- Michelin with a capital of 19.64 billion Euros.
- Teleperformance with a capital of 16.63 billion Euros.
- Thales with a capital of 16.13 billion Euros.
- Société Générale with a capital of 15.28 billion Euros.
- Alstom with a capital of 13.7 billion Euros.
- Carrefour with a capital of 13.32 billion Euros.
- Bouygues with a capital of 13.23 billion Euros.
- Veolia Environnement with a capital of 13.08 billion Euros.
- Publicis with a capital of 10.7 billion Euros.
- Renault with a capital of 10.27 billion Euros.
- Unibail Rodamco Westfield with a capital of 8.58 billion Euros.
- Atos with a capital of 7.4 billion Euros.
Of course, although it is possible to take position and trade directly on the CAC 40 stock market index rate you can still choose to speculate on the share prices of which it is composed. It should also be remembered that the classification we have used is liable to change over time according to changes in the stock market capital of these companies and any changes in the composition of this index.
A technical analysis of the CAC 40 index rate and the indicators to follow:
The second analysis you should use to study the growth possibilities of the CAC 40 index is the technical analysis.
This is based uniquely on the study of this index’s charts and its current and historical rates. To complete a comprehensive technical analysis it is however important to have some understanding of the methodology and principal technical trend and volatility indicators as follows:
- The mobile averages
- The MACD indicator
- The Bollinger bands
- The pivot points
- The technical support and resistance levels
The more indicators you use the more pertinent and precise your analyses will be. Of course, for this you should pay careful attention to the charts you use for this analysis and in particular favour those that can be personalised to your requirements. These charts, available from online brokers, will actually enable you to generate different displays of curves, timelines and indicators for a clearer visibility. Then you simply have to interpret the movements that you observe on your monitor to obtain the required signals.
We would nonetheless draw your attention to the fact that this technical analysis should never be used alone, always with an accompanying comprehensive fundamental analysis, whatever the asset you are studying.