Last year was an annus horribilis for the JSE – the All Share Index was 8.5 percent lower than the previous year, while in dollar terms it fell 21 percent.
“The fourth quarter brought a dismal end to a jarring year for investors. Despite the global economy remaining in reasonable health, fear decisively trumped optimism across markets, leading to record outflows from global equity funds in December.
"The result was the worst year since 2008, with all major equity markets around the globe losing money in dollar terms,” Coronation Fund Managers head of personal investments Pieter Koekemoer said recently.
PSG Asset Management chief investment officer Greg Hopkins wrote in their online publication: “Rolling five-year returns in South Africa to December 2018 have only been poorer on four occasions over the past 40 years. Of the local companies in this sample (around 289), 79 percent are down by more than 20percent from their five-year highs. This is indicative of a relative deep bear market.”
The market has shown little sign of recovery so far this year.
Yesterday morning, the All Share Index was up by 6.1 percent year to date, and over a year the index was still lower by more than 2 percent.
Another random example of how weak the market really is can be seen from a Standard Bank report on the real estate sector of the JSE, which showed that average market capitalisations of these companies by the middle of February was, on average, 15 percent below that of the same time a year before.
Arguably the biggest driver of sentiment on the JSE is global growth, and how it impacts corporate earnings, and this presents a key uncertainty among investors at present.
In January the International Monetary Fund lowered its global growth forecast for 2019 to 3.5 percent, from the 3.7 percent that it forecast in October last year.
Investors are fretting about Trump’s increasing unpredictability, and that interest rates in the world’s biggest economy might continue to rise this year, crimping relatively good growth.
Corporate earnings of companies in the S&P 500 index have, through the first quarter, mainly been below analyst expectations. This after the index had risen to its best level in three decades in January.
Jobs data in that country has fallen short of expectations.
Uncertainty about Brexit, trade tensions, between China and the US in particular, geopolitical tensions such as in Turkey, and volatile currencies, particularly as it pertains to emerging markets, all add to the unpleasant mixture.
Many emerging market countries, like South Africa, are struggling economically, and global investors have swung their funds out of these markets, in search of “safer” investments in developed countries.
More positively, however, has been the commitment by central banks in recent weeks to maintain fiscal stimulus in their economies, such as in Europe and the US.
This month, for instance, the JSE and other markets were boosted after China announced billions of dollars in tax cuts and infrastructure spending to boost its economy - gross domestic product (GDP) growth of 6.6 percent last year was the slowest in three decades.
Another inhibiting factor on global growth is that oil prices have started to rise again, due to signs of production cuts from leading oil-producing countries.
But it is not all bad news on the global front.
China has a good record of successfully stimulating its economy and boosting consumer and infrastructure spending.
Low inflation and still very low unemployment in the US indicates resilience in that economy.
The local economy also drives stock prices on the JSE, particularly for the smaller and middle-sized market capitalisation companies, and there is no shortage of bad news.
For instance, Finance Minister Tito Mboweni in February downgraded the government’s GDP forecast for 2019 to 1.5 percent, from an earlier forecast by the South African Reserve Bank of 1.7 percent, which was made last October.
Business confidence levels sit at near 40-year lows, and consumer confidence is low.
Business leaders complain about ongoing political uncertainty created by the May national elections, the lack of clarity on land reform and the fiscal problems presented by failing state-owned organisations (SOEs) such as Eskom and SAA.
Group Five going into business rescue highlights how the government has failed to invest in necessary infrastructure, and how this impacts on the rest of the economy, in this case, what was once one of the country’s biggest construction and engineering groups.
Asset managers, predictably perhaps, view the low share price environment as a good buying opportunity, a time to buy high-quality companies at low prices.
Hopkins said that on the five previous occasions when local listed share prices reached historic lows, subsequent three-year annualised returns averaged around 24 percent.
He said the “low road” scenario for South Africa is mitigated by three things: that we are still a functional democracy; many of our institutions operate credibly, such as National Treasury and the judiciary; and President Ramaphosa has acted to restore ailing SOEs.
Nevertheless, economists warn that growth will be tepid this year.
There may be a fire sale on at the JSE, but one can’t help wondering whether we have reached the bottom yet.