JOHANNESBURG – It has been a winter of discontent for the JSE, as geopolitical trade constraints, low domestic economic growth and embattled Eskom’s deteriorating financial position hurt the domestic equities market.
The JSE all share index gained 7.1 percent in the first three months of 2019 – the best performance since the first quarter of 2007 on the back of strong showing by resources and industrials stocks.
However, since May’s national elections and the pronounced financial challenges of Eskom, which culminated in the government providing a further R59 billion over two years in financial support and the utility’s shock R20.7bn loss for the 2018/19 financial year, the local bourse has punched below its weight.
Dave Mohr and Izak Odendaal from Old Mutual Wealth in a research note said while the local equity market suffered setbacks last week, it never had the flying start to the year global markets did.
“The FTSE/JSE All Share was negative in July, declining by 2.4 percent. The 2019 return of 8.6 percent is still decent, though it hasn’t made up for 2018’s losses and the index remains below all-time highs,” Mohr and Odendaal said.
“In a smaller and concentrated market like South Africa’s, stock-specific issues can move the benchmark. The list of companies that have reported poor capital allocation decisions, particularly offshore acquisitions, continues to grow.”
Multiple corporate failures due to fraud and mismanagement have also weighed on the JSE in recent times, with the likes of Steinhoff, EOH, Tongaat Hulett found wanting.
Other group’s like Omnia, Aspen and Ascendis Health are saddled with high debt.
Nick Pitro, a senior consultant at Austen Morris Associates, said local assets were becoming increasingly uninvestable and that he was advising clients to invest in the US stock market. “If you live in South African and have a house and pension here, keep them, but take as much of your investable money out as you can. Staying invested in local assets is likely to erode your wealth over time,” Pitro said.
“The US market is not cheap, but not very expensive either. And there is little doubt that the many of the world’s best companies are American. They just keep leading the way in innovation and thinking that changes the world.”
The never-ending trade war escalation between the US and China, which ramped up last week has also seen global stocks including the JSE taking a beating.
Bond flows have also weakened across emerging markets, though at a slower pace than equities.
Data from the Institute of International Finance showed that South Africa is the main driver of net bond outflows in emerging markets, experiencing more than $600 million (R8.93 billion) in net outflows last week.
The Washington-based global association in a note said emerging markers saw nearly $3bn outflows from stocks and bonds since Monday as a consequence of trade tensions between the world’s two largest economies.
Portfolio manager at Sanlam Investments Vanessa van Vuuren said the relative underperformance of the South African focused mid- and small-cap financial and industrial stocks had created a significant buying opportunity.