In a presentation at the recent Allan Gray Investment Summit in Cape Town, Stanlib chief economist Kevin Lings asked whether South Africans were “too in love” with equities. He said we tend to compare our stock market with the US stock market and those of other developed countries, whereas we should rather be comparing it with those of our peer emerging economies, such as Brazil, Turkey and India.
Lings made the point that the market capitalisation of the JSE equates to more than 200% of South Africa’s gross domestic product, the highest ratio of any stock market in the world, and this is not sustainable.
He said although South African equities have underperformed in recent years, particularly when compared to US stocks, their performance is actually in line with that of other emerging markets. Much of this has to do with the fact that economic growth in developing countries has struggled to recover since the 2008 financial crisis.
“Emerging-market equities have not been the place to be, and South Africa is simply a part of that,” said Lings. “We’re beating ourselves up too much. If the growth rates in emerging markets pick up, so will equities.”