Sadder, wiser markets emerge from wild ride

A RELATIVE sense of calm and stability has returned to South African markets near the end of what has been a roller-coaster ride for investors this month and, indeed, this year.

The JSE All Share index is relatively flat in rand terms so far after a buoyant start to 2015. In dollar terms, the picture looks uglier after the benchmark dropped 24% because of a weaker rand.

Since peaking at 55 188.34 points in April, the R10.38-trillion domestic market has struggled to make headway. Other global stock markets, such as the US, have displayed a similar pattern.

There were many variables along the way that thrust most equity markets this year into correction territory — defined as a drop of more than 10% from recent highs.

These variables included the Greek crisis, low commodity prices and jitters over an interest rate hike in the US, which was announced after months of speculation.

The most important feature, though — from the viewpoint of South African markets — was the unceremonious sacking of finance minister Nhlanhla Nene.

Banks and financial shares — which were the hardest hit in the immediate aftermath of President Jacob Zuma’s surprise decision to appoint little-known David van Rooyen to the position before subsequently backtracking — have yet to fully recover from the drama, which ended with the appointment of Pravin Gordhan as the new head of the finance portfolio.

“We end the year close to where we started, but in between were some scary moves, not fun at all,” said Gerhard Lampen, head of online trading at Sanlam Private Wealth.

The rand, which has hit record lows to the dollar, euro and British pound in the past two weeks, has perked up a little, as has the bond market, after Gordhan sought to reassure markets that the country would stick to a viable fiscal path. The All Share index again hit the 50 000-point mark this week, driven by some bargain hunting in the financial and resource sectors.

Still, some analysts believe it will take a while before investor confidence returns to South African markets, given that the country has recently been handed the lowest investment grade rating by some credit-ratings agencies and therefore faces the threat of a credit downgrade.

“In the short term, I believe that South African investors will be apprehensive to invest fresh capital into local equities as uncertainty and risk perceptions have increased,” said Grant Gilburt, stockbroking portfolio manager at Nedbank Private Wealth.

“The recent events have highlighted the importance of diversifying your portfolio across industries and geographies and have reminded investors of the impact of unforeseen risks.”

With only a few days to go before the end of what has been a generally trying year for JSElisted stocks, investors will be hoping for a better season ahead.

The resources sector in particular has endured another torrid year, underperforming the broader market. Impala Platinum, Kumba Iron Ore and AngloGold Ashanti lost their Top 40 status this year, leaving just a handful of mining companies in the bluechip index once dominated by the resources sector.

The struggling resource 10 index has been reconstituted as of this week, with Mondi Plc and Sappi now forming part of the index, replacing Sibanye and Northam Platinum. Mining shares are largely victims of per- sistently weak commodity prices.

Stock winners have been few and far between this year and are mostly concentrated in the industrial sector, which, together with financials, now dominates the 64-member All Share index. Brewing giant SABMiller, the target of a takeover bid by AnheuserBusch InBev, leads the charge in the industrial index after gaining 50% in value this year.

Media and internet company Naspers and British American Tobacco also contributed significantly as they gained 39% and 31% respectively, partly as the result of a weaker rand. The industrial 25 index itself has gained about 14% since January.

Unsecured lender Capitec Holdings has bucked the muted market trend, making its way into the Top 40 and rallying a sturdy 62% in value this year.

It has been tough going for some erstwhile market darlings, such as Aspen Pharmacare and Coronation Fund Managers, whose shares are mostly likely to end the year weaker after outperforming in recent years.

Lampen said share valuations on the local market were a lot cheaper than a year ago, so there was potential for a healthy increase in share prices if a few things worked out.

These include foreign investors’ confidence in South Africa growing — something that, according to Lampen, was now down to Deputy President Cyril Ramaphosa — and preventing a downgrade by ratings agencies. “If not, it will be hard to call the bottom in a junk status market.”

The overall picture on the global stock market has turned out to be a lot better than initially feared, especially in August, when major indices took a dive after China devalued its currency, leading to a sharp drop in metals prices.

Despite the wobble in recent months, global stock markets have generally fared well since the 2008-09 crisis, almost tripling.

Excluding dividends, the All Share index has surged 183% in rand terms since hitting its lows in November 2008. This translates into a 96% rally in dollar terms.

We end the year close to where we started, but in between were some scary moves, not fun at all