JSE erases 2020 losses but domestic economic prospects remain a worry
The JSE has erased all of its 2020 losses.
But analysts are not celebrating, with the recovery reflecting the dominance of a few technology stocks and commoditybased shares that have benefited from a global demand for safe havens.
Banks and other sectors that are a more accurate proxy for the local economy have moved more in line with analysts’ predictions of the deepest contraction in GDP in about a century.
The JSE got a boost from higher international markets on Wednesday, rising 0.72% to close 0.15% higher for 2020, with the main US index heading for a record last seen in February, before the Covid-19 outbreak went global.
In the immediate wake of the global sell-off, the JSE dropped as much as 33% to levels last seen in April 2013.
“There have been massive stimulus measures out of major central banks,” said Sanlam Private Wealth portfolio manager Nick Kunze.
Central banks have made no secret of the fact that they will continue to support economies, he said.
“A lot of investors are looking for yield. They seem to be finding it in equities worldwide.”
As markets collapsed globally towards the end of the first quarter, central banks responded by injecting amounts of stimulus that exceeded what they did during the global financial crisis a decade ago.
With returns on bonds and cash at historical lows, investors turned to equities, defying predictions of 2020 falls redolent of the Great Depression.
Sentiment has also been helped by confidence that the world is getting to grips with the Covid-19 outbreak, though that has proved vulnerable to reports of new waves of infections and lockdowns.
The latest good news came with a report that Russia had approved a vaccine.
The rand, which has fallen about 20% in 2020, gained as the improved environment for riskier assets sent the dollar lower. The SA currency was 1.39% firmer at R17.4583/$ at 7.20pm on Tuesday, its biggest gain since July 1.
SA bonds were a little weaker, with the yield on the R2030, which moves inversely to the price, up five basis points to 9.27%.
While the dominance of Naspers and Prosus have, together with a gold price that jumped to records above $2,000/oz helped the JSE, the performance of the country’s banks tells a different story.
The banking index has fallen 40%, while general retailers are down 35% in 2020.
“The banks are really reflecting the expectation that economic growth going forward is going to be under strain,” said FNB Wealth and Investments head of investment research and content Chantal Marx.
“People are going to struggle to repay their loans, and even if they don’t the banks will have to raise quite substantial provisions in case the economy does not recover as quickly as expected.”
With US elections about three months away, the international picture may yet present more risks for investors, irrespective of Covid-19, Kunze said.
“We are less than 100 days away from that, and it is going to be a massive risk event on either side as no one knows how it will pan out. One thing investors can be sure of is that there is going to be increased volatility. Also, it seems Covid-19 will be with us for a while still.”
WITH US ELECTIONS ABOUT THREE MONTHS AWAY, THE INTERNATIONAL PICTURE MAY YET PRESENT MORE RISKS FOR INVESTORS