JSE the exception in a plethora of dismal figures
SHARES exposed to direct consumer spending — most notably those of the JSE’s retail and unsecured lending companies — have come under heavy selling pressure in recent weeks.
A batch of depressing data released over the past few days has tended to support the sell-off.
For businessmen and for the shareholders of our large consumer-facing businesses, it has been a week of bad news.
For instance, credit and information group TransUnion confirmed what the market had inferred from African Bank Investments’ results released earlier this month, that unsecured lenders had overextended themselves in a splurge of unsecured credit granted last year.
It is clear that the woes of SA’s cash-strapped and debt-laden consumers are far from over, in spite of the longest period of low interest rates in decades. In fact, it is becoming apparent that the low interest rate environment may have fuelled the growth in credit last year that consumers are now struggling to repay.
A TransUnion index, which measures consumer credit health, has fallen to levels last seen during the 2008 financial crisis (although SA was not as badly affected as other countries), and the slide was driven by a rise in impairments, which means fewer people are paying their bills.
It was the fourth consecutive quarter of decline of the index.
Then there was the Reserve Bank, which reminded us that the banks were well provisioned and that the level of unsecured lending had risen to fresh peaks late last year. It is going to be some time yet before those loans, and the commensurate levels of delinquencies, work their way through the financial system.
Then there was the gross domestic product (GDP) data, which showed disappointment in economic performance across a broad range of sectors, such as manufacturing, agriculture and utilities, as well as weaker than expected growth in many sectors that depend on domestic demand.
SA’s growth slowed to 0.9% quarter on quarter in the first quarter of this year, from 2.1% in the fourth quarter of last year.
The GDP growth figure indicates a continuation of the anaemic growth that has been the main movement of the economy since 2009. In contrast, the JSE has produced good returns since 2009.
Consider that the FTSE/JSE all share index has risen to as high as 41,836.02 on May 22 this year, from 25,793.06 on May 2 2010.
That’s growth of 62.2% over three years.
Over the same period the Standard & Poor’s 500 index rose to a high of 1,669.16 on May 21 this year, from a low of 1,022.58 since 2010. That’s growth of 63.2%. In fact, the shape a line graph of the two indices shows much similarity, suggestive of the heavy weighting of SA’s strongly performing international companies in the local index.
In spite of all the talk among businessmen of faster-growing emerging markets, the MSCI emerging market index has only risen from a level of 989.47 on January 1 2010 to 1,028.53 yesterday, a paltry 3.9% rise in three-and-a-bit years. But what one can deduce from these indices is that JSE investors have had a good run out of the market since 2010, in spite of weak economic growth.
Consumption expenditure by households accounts for close to 60% of GDP.
Average real gross domestic expenditure growth has been weak but fairly consistent at over 3.5% between 2010 and last year.
It is not difficult to assume that this figure will be quite a bit lower this year as it tracks the decline in the GDP forecasts and the barrage of negative news about the consumer over the past few days.
It seems to me then that the JSE is on the verge of splitting between two trends. If the global economy keeps limping along as it has since the last recession, JSE-listed stocks with a strong international component to their business are likely to continue to produce relatively robust earnings growth.
Although world markets are volatile, there remain positive aspects to the outlook for the global economy, such as a recovering US, and growth in China that, while slower, remains robust.
But the same cannot be said of the local economy.
Falling productivity at all levels is fast sinking any hope of a revival in another former key driver of the local economy, the mining sector, while short to medium prospects for the consumer remain bleak.
The earnings and share price strengths of companies focused on the South African market may be taking a turn for the worst, at least for the rest of the year.