Can global equity markets sustain gains in longer term?
CAPE TOWN - Rising local and global equity markets since the beginning of April signalled stronger earnings growth from companies in the months ahead, Vunani Capital Group economist and strategist Johan Rossouw said yesterday.
Speaking in a Business Report webinar on alternative markets yesterday, he said the big question was whether these gains were sustainable in the longer term.
Globally, there were some green shoots, including that China’s gross domestic product (GDP) grew 3.2percent in the second quarter from -6.8percent in the first three months, although this was still a tentative growth in the context of China’s recent past. There were also positive results coming from the developers of vaccines for Covid-19 and it was possible one might be available before the end of the year.
In addition, “unprecedented” monetary and fiscal stimulus packages had been unleashed by governments to underpin economies struck by Covid-19 related shutdowns.
Inflation worldwide was at low levels, which should help to stimulate earnings growth of companies, said Rossouw.
In South Africa, where real GDP was expected to decline 8 to 9percent this year, and to grow between 3 and 4percent next year, there were still significant structural, policy and other issues that needed to be dealt with for GDP to grow sustainably into the future, he said.
Rossouw said from a foreign investor perspective, and in spite of the 14percent gain in the rand since April, South African bonds and equities were still attractive.
Ettienne Nel, chief executive of the alternative digital stock exchange ZAR X, said there was a great deal of narrative about the JSE losing large numbers of listings, but in fact, this was a feature of many other equity markets the world over.
While the number of JSE listings has declined from more than 600 to about 360, listings in the UK and US stock markets had about halved, he said.
Nel said this was due to a number of factors. One was the significant increase in the incidences of corporate largesse, corporate governance failures, greed and fraud in recent years by the managements of large companies. On the JSE for instance, this included companies such as Steinhoff, Tongaat Hulett and EOH.
These failures had resulted in a significant increase in compliance costs worldwide, and for many companies “it has become prohibitively expensive to remain listed”.
There had also been growth in other markets, such as in private equity and venture capital, while the technological infrastructure of markets had changed with, for instance, growth of cryptocurrencies.
Franz Gmeiner, chief executive of Orion Real Estate, which has a property portfolio worth R630million, said they had listed on ZAR X during the level 5 lockdown using the Zoom video conferencing platform. The company had also regained its Reit status that it lost last year, prior to delisting from the JSE.
Gmeiner said the company’s share price currently represented an arbitrage opportunity as net asset value was at 86cents, while the share was trading at 45c.
He said, however, there had been interest through the lockdown from companies seeking to acquire less expensive, quality office space.