Nightmare on Maude Street

The performance of the Johannesburg Stock Exchange is becoming a horror story.

The performance of the Johannesburg Stock Exchange is becoming something of a horror story.

Can you remember watching TV as a child, and your mother or father would suddenly cover your eyes when something risky came onto the screen, either violence or sex, so that you wouldn’t be frightened, or worse?

Even as an adult your instinctive reaction to scary movies – think Wes Craven’s Nightmare on Elm Street or The Dead Zone by Stephen King – is to shut your eyes, hoping the nightmare will soon go away.

So, here is my warning to queasy readers: if you scare easily, don’t read on.

But I must warn you, the boogie-man is always there, every day and every time you open your investment portfolio linked to the Johannesburg Stock Exchange (JSE).

For all we know, King is busy bashing the keyboard working on his scariest film ever, Nightmare on Maude Street, and the monster that’s coming for your personal wealth, pension fund and investment portfolio. Of course I am being theatrical, but the performance of the JSE is becoming something of a horror story.

The only difference this time is that it’s real and no amount of eye-clinching and hiding behind your mother’s hands will make the unpleasant reality go away.

I have written many articles about the poor and lagging performance of the JSE over the past couple of years, often incurring a barrage of criticism.

It’s becoming harder, when analysing the numbers objectively, to come to any conclusion other than that the JSE is not the wealth generator it used to be. And the outlook, in my view, is not going to change very soon. In fact, it could easily get worse.

Many analysts would like to pretend that the current downtrend is cyclical and that the time to buy is near.

I would rather suggest that the issue is structural, deeply damaging to the economy and ominous to future investment returns. Even the oft-touted argument that the JSE earns 65% or so of its revenue offshore and is a rand hedge bourse, seemingly does not hold water anymore.

The recent bout of weakness in the rand has not translated into better returns as it did during previous times of rand weakness. The reason? The downturn in commodities means that we are receiving much lower prices for the commodities we are exporting. Furthermore, cost push pressures on our exporters (think rising labour costs in the gold and platinum industries) means the profitability of our exporters is under pressure.

In short: when compared to the global investment regions, in rands or in dollars, over periods from one to five years and even longer, the JSE has been the worst performer. Even more worrying is that when its performance is measured against (a) our peers in emerging markets, (b) our peers in the Brics grouping, and (c) against stock exchanges in the grouping known as frontier markets, the JSE is again stone last. We have witnessed a slow but relentless collapse, first in gold mining, then platinum mining and now the construction and manufacturing industries.

The massive consumption expenditure boom fuelled by easy credit from around 2000 to around 2008 has also come to an end, which is evident today in the profit growth (or lack thereof) of South Africa’s retailers and granters of credit.

Magnus Heystek is investment strategist at Brenthurst Wealth