‘Trump jump’ seems to rub off on JSE
SHAKE: Traders celebrate on the main trading floor of the New York Stock Exchange as the Dow Jones Industrial Average passes the 20 000 mark for the first time shortly after the opening of the trading session on Wednesday THE JSE’s performance has stacked up well relative to global counterparts this month, suggesting that 2017 might mark a turning point for the local market, which has struggled to gain traction the past two years.
The All Share index gained up to 5%, adding about R400-billion since the start of the year to the market capitalisation of Africa’s biggest stock exchange.
“At the moment I think that the reaction has been due to a combination of looking back at the year that was and looking forward to what people perceive will happen this year,” said Caroline Cremen, portfolio manager at Adviceworx, a member of Old Mutual Group.
“When we look back, we see a bizarre year where multiple unexpected events occurred locally and internationally, and investors see that the world did not go to pieces.”
Sentiment took a severe knock last year when the National Prosecuting Authority laid fraud charges against Finance Minister Pravin Gordhan, which were later withdrawn. The drought pushed up food inflation. Then there was the threat of a sovereign credit rating downgrade, which was averted last month.
Globally, the Brexit debacle is still playing out after striking a devastating blow to some JSElisted stocks with UK exposure.
The All Share delivered low single-digit returns last year, dented in part by a stronger rand, which affected big companies that get part of their revenue in foreign currencies.
The low returns also mirrored the challenges in the economy, which the Reserve Bank expects to have grown 0.4% in 2016, the lowest growth rate since the financial crisis in 2009.
However, the election of Donald Trump as US president appears to have boosted optimism in some quarters, based on his pledge to increase spending on infrastructure, which could spark greater demand for commodities.
He also promised to cut corporate taxes and loosen the regulatory burden, which bodes well for corporate profits.
The US stock market, which often sets the tone for global markets, hit another record high this week. The Dow Jones Industrial Average topped the 20 000 point for the first time in what some have dubbed the Trump jump, as it followed his inauguration.
Vasilis Girasis, a trader at BP Bernstein Stockbrokers, said: “The Dow hitting 20 000 was obviously a massive psychological level and could provide some impetus to the rest of global markets in the short term, but one should also take cognisance of the extended rally we have experienced and I feel a correction is now overdue.”
The market rally has largely been concentrated in resources, supported by industrial stocks that have rebounded from last year’s lows. Mining stocks have tracked the rally in the underlying commodity prices.
The improving conditions in agriculture are expected to boost food producers such as Tiger Brands and Pioneer Food. The area planted with maize is 2.54 million hectares this year, up 31% from last year, Crop Estimates Committee data showed this week. This will help alleviate high input costs and improve the companies’ earnings.
“There is a group that says it can’t be worse than last year, a group that says the Trump jump will have legs, and a group that feels there is no single large market event looming,” Cremen said. “I personally think there are a lot of companies on the Alsi that are undervalued.”