JSE bound ‘to end year higher’
• Sell-off in second half of 2016 created a low base for future returns
Analysts are positive the JSE all share could end 2017 at least 10% higher than in 2016 after positive emerging-market sentiment, a rebound in Anglo American and a weaker rand lifted the market to four record highs last week.
Analysts are positive the JSE all share could end 2017 at least 10% higher than in 2016 after positive emerging market sentiment, a rebound in Anglo American and a weaker rand lifted the market to four record highs last week.
Old Mutual Multi-Managers investment strategist Izak Odendaal said 2016’s secondhalf sell-off created a low base for future returns.
“Even if the index remained flat for the rest of the year, oneyear returns will rise to about 10% in December.”
The all share has risen 10.45% since January. It took the index more than two years to close above the 55,000-point level.
Anglo American returned 23.5% in July after resuming dividend payments. This helped the resources index to end July 13.7% higher. Banks rose a monthly 8.58% and general retailers 5.47%.
Concern about high valuations on US markets have benefited emerging markets. At the end of July, the MSCI emerging markets index was up 25% in 2017, or 20% in rand terms, while the MSCI world index had risen 14% in dollar and 7% in rand terms.
The all share experienced a double whammy last week, with miners and rand hedges rising on a weaker rand, while banks, retailers and property stocks gained in risk-off trade.
The trend in the first half of 2017 was for rand hedges and miners to be sold off on the stronger rand, while banks and retailers did not fully benefit from the firmer currency and lower interest-rate environment in risk-off trade.
Analysts say if the new trend continues, the market could experience further upside.
“Our market is still trading near the top of the range and could go either way from here, although bias seems to be towards the up side,” said BP Bernstein Stockbrokers analyst Vasilis Girasis.
Movements in the rand suggested the market was sceptical about further strength in the local currency after it could not break through R12.85/$ in July.
It weakened to R13.40/$ last week. A weaker rand should support rand hedges, but some market giants experienced bumpy trading recently on company-specific issues.
Hardest hit among them has been British American Tobacco, losing 7.64% in July. The global tobacco giant has recovered all the losses so far in August as the market brushed off concerns about the US Food and Drug Administration’s (FDA’s) planned reduction of nicotine content in cigarettes and a UK investigation into fraud allegations. “With the company’s geographical diversification, it should be noted that any FDA regulations, once finalised in whatever fashion, will not affect the whole British American Tobacco portfolio,” Momentum SP Reid analyst Brian Mugabe said.
Richemont may point to the road ahead. Despite sluggish earnings growth, it is cheaper than some of its global peers.
The global luxury goods group hit an intraday high last week and has bounced back 28% so far in 2017. It lost 18.68% in 2016.
In similar fashion, AnheuserBusch InBev (AB InBev) rose 10.13% in July after falling in June as a strong performance from the South African assets impressed the market. AB InBev has gained 9.5% so far in 2017. Despite softening last week, Naspers is still 40% up for the year, but might be heading for a softer patch on overbought concern related to its Chinese Tencent internet investment, of which it owns a third.
Tencent has dropped from record levels and is trading at a price:earnings of about 60. Naspers is at 112.