Better global outlook set to boost SA equities

THE South African equities market is in a better shape than it was a year ago. And signs are that it is going to benefit from a positive global equities outlook in the year ahead. This is the view of Izak Odendaal, an investment strategist at Old Mutual Multi-Manager.

“But there are also other factors that influence the local equities market over and above the positive global sentiments. The rand has strengthened against the dollar, which is good for local companies on the JSE that derive their earnings in local currency,” said Odendaal.

However, he cautioned the opposite is also true for companies whose earnings were derived in foreign currencies, such as Naspers and Richemont. They would be negatively impacted by the strengthening of the rand, he said.

“The rand has appreciated 2.7 percent against the dollar during February, and if it firms up further, the SA Reserve Bank will start considering rate cuts,” added Odendaal.

He said it was still too early to tell what the future held for the local equities market this year as there might be events that could reverse the gains achieved so far.

The outlook in February was not good for the local market, though, and local equities did not follow global markets higher last month.

“The FTSE/JSE All Share Index (ALSI) lost 3.1 percent during the month, while the FTSE/JSE Shareholders Weighted Index (SWIX) fell 1.5 percent. This reduced the return for the first two months of the year to 1 percent for both indices. The ALSI returned 6.3 percent and the SWIX 7.7 percent over 12 months,” Odendaal said.

Emerging market equities had benefited from the more favourable global environment and resumed capital flows, gaining 1 percent over two months since the beginning of the year.

The cause for the decline last month was the resources index, which slumped by 9.9 percent, wiping out January’s strong gains.

On the global front, in line with renewed optimism on global growth and inflation, led by the US, global equities have surged to new highs. The MSCI World Index broke through its previous record high on its way to delivering returns of 2.8 percent in US dollars last month and 22 percent over the previous 12 months.