LOW GROWTH, ‘JUNK’ STATUS HURT JSE’S ALSI PERFORMANCE
The FTSE/JSE All Share Index is dismally underperforming all major global equity measures due to South Africa’s stagnant growth, “junk” investment status and investors’ uncertainty about the country.
Eugene Chemaly, Afrifocus Securities MD, said on Friday that the index was underperforming the major MSCI indices and the S&P 500 due to the lack of growth in South Africa and the fact that two of the major credit rating agencies, S&P Global Ratings and Fitch Ratings, downgraded at least one of their measures of South Africa’s ability to repay its debt, to junk status.
This scenario means local consumers are under pressure and domestic companies, listed on the JSE, are producing profits below expectations.
“When a listed company has to downgrade their earnings forecasts, that causes their share price to underperform,” Chemaly said.
South Africa’s economy is growing at 0.5% while the world, on average, is expanding at 3%.
This underperformance means the country and local investment assets are not considered a “buy”. Instead, Chemaly advises local investors to move as much of their money offshore as possible.
“Money flows to where money grows. Until the ANC’s elective conference in December has passed, JSE stocks aren’t likely to see much movement,” Chemaly said.
Petri Redelinghuys, Herenya Capital Advisors founder, said that general investor sentiment towards South Africa is “very negative”.
This is due to the lack of growth and drastic and unpredictable changes in local policies.
Examples of these changes include the imposition of the mining charter, which knocked local mining shares, regular changes to the person who holds the position of finance minister, state capture and continued struggles at state-owned companies.
This had culminated in foreign investors selling significant amounts of local equities, Redelinghuys said.
– Justin Brown
FTSE/JSE All Share
MSCI AC Asia ex Japan
MSCI AC World
MSCI Europe S&P 500
MSCI Emerging Markets NR USD
1.2 5.9 4.1 4.5 4 5.9
7.7 23.9 14 19.5 10.9 22.4
10.6 19.4 12.7 16.4 11.1 19.9
5.6 14.7 13.8 10.1 16.9 11.2 12.1 19.4 21.5 19 25.2 15.4