Weak rand could spark rally

• Only a currency slide and rates cuts are likely to boost the JSE’s all-share index in the short term, say analysts

Market watchers say that only rand weakness and to a lesser extent lower interest rates are likely to benefit the JSE all-share index in the short term.

Stanlib retail investment director Paul Hansen said that a weakening in the rand “should boost the rand-hedge shares on the JSE, so the potential exists for a very good rally if a few things fall into place”.

Capital Economics expects a 25 basis points cut in interest rates by the Reserve Bank at year end and a similar cut in 2018.

Analysts reckon that the expected gradual lowering of interest rates would make for rand weakness, providing a driver for JSE returns over time.

The all-share index has been moving sideways for the past three years.

Political risk, credit rating downgrades and subdued economic growth have hit the earnings of companies since 2013. The last time the all share enjoyed double-digit growth was in 2013, when it ended the year 17.85% higher.

The all share hit a record high of 55,188 points in April 2015, but at the end of last week, it was back at levels last seen in June 2014 after June’s 3.5% drop.

The all share lost 4.06% in November 2015 as banking shares pulled back on negative emerging-market sentiment just before former finance minister Nhlanhla Nene was fired that December.

The all share started the second half of 2017 on a positive note on Monday, rising 1.07% but was under pressure on Tuesday with the weaker rand bringing some relief towards the close. It closed 0.22% lower at 52,049.30.

BP Bernstein Stockbrokers portfolio manager Vasili Girasis said: “Only a weaker rand can save the all share over the short term with lower interest rates only having a limited effect.”

Rand weakness was bound to boost resources with a strong performance from gold shares. On Tuesday, the gold index lifted 2.53% while the gold price was only marginally up.

“That tells me the market is pricing in a weaker rand of R13.80/$ with resources and platinums set to benefit,” BP Bernstein’s Girasis said.

Old Mutual Multi-Managers analyst Dave Mohr said it was striking how poorly local equities had fared. “Local government bonds have done well despite the downgrades and global equities have surged over the past 18 months.”

Companies in the hospital, retail and property sectors have increased their offshore exposure. According to Reserve Bank figures, South African companies invested R300bn abroad over the past five years.

“This means the local economy has a much bigger built-in hedge against a weak currency,” said Mohr.