January 5 2011 at 06:02am By Ayanda Mdluli
Independent Newspapers
JSE CEO Russell Loubser. Photo: Leon Nicholas
Optimism about the prospects for South African corporations helped propel the JSE all share index to a 19 percent rise in 2010, but some analysts are cautious about this year if the economic recovery proves weak.
Although the Reserve Bank has cut interest rates to a 30-year low to foster growth, there remains a concern the recovery may be unsustainable, partly due to rand strength that has weighed on exporting sectors like manufacturing.
Even so, last year’s impressive increase on the all share index is a reflection that South African corporations fared better in 2010 than the rest of Africa. Excluding dividends, the all share index advanced 15.4 percent.
According to a report from JPMorgan on emerging market equities in 2010, South Africa was the eighth-best performing country out of 22 markets.
Michael Power, a strategist at Investec, said the South African economy had a strong resource component, which led to the market doing well.
He said the economy grew by 18 percent in normal dollar terms.
However, he warned that 2011 would not be an easy year and that South Africa would not experience another 11 percent appreciation of the rand against the dollar.
His views were based on an emerging market investor who got a 30 percent-plus return from the South African market in 2010.
He said there was no loss of value showing in the local market, but cautioned that returns would be a lot lower.
He also forecast that there would be no strong recovery for consumers and predicted that the chances of further rate cuts were slim.
“We may experience one more interest rate cut, however chances of more rate cuts are small and we must guard against rising input costs of food, oil and coal,” he said.
According to Russell Global Indexes, which covers 98 percent of investable international markets, the JSE was +35.4 percent in dollar returns in December, compared with other Bric nations such as Brazil, which stood at +11.2 percent.
India was at +20.1 percent, Russia at +25.6 percent and China at +9.3 percent.
The markets are almost back at levels seen prior to the global economic meltdown, a welcome development, according to JSE chief executive Russell Loubser.
Loubser said the run-up meant that South Africa was not a basket case and was punching well above its weight, suggesting this achievement had improved the image and perception of the country among investors.
“If we were a basket case as a country then we would be a basket case as a stock exchange, generally speaking we made a good impression and the image and perception of the country has improved.”
He said a significant factor which enticed foreign investment towards the local market was the country’s rating in the World Economic Forum’s Global Competitiveness Report.
According to the report, South Africa was rated first in the category of the regulation of security exchanges.
This rating, according to Loubser, ensured that investors were comfortable with the South African market and resulted in foreigners becoming net buyers of local equities.
He noted that the financial markets formed a small part of the economy.
“There are tens of thousands of companies that are not listed and the 400 in the JSE are not a true representation of the total economy.”
Coronation Fund Managers portfolio manager Gavin Joubert said there was no clear answer on how the strong rand, which was bid at R6.702 to the dollar at 5pm yesterday, had impacted on the all share index because it varied depending on the individual stock concerned.
“Some companies benefit from a strong rand whilst others are negatively impacted,” Joubert said.
He added that individual share prices might have no relationship to the rand’s movements and how it affected the earnings of a particular firm.
“For example, a strong rand is negative for the earnings of resources companies, but most resource share prices were up in 2010. This was partly due to the fact that commodity prices had been very strong, which could have partly offset the negative impact of the strong rand,” Joubert said.
He said over the next five years it could be expected that the returns from local equities would be much lower than in the past five years.
He said he could not say which sectors would underpin the market in 2011 because Coronation bought individual stocks that the company believed were undervalued and that over a period of time would reflect that value.
“Our largest holdings at the moment are MTN, Naspers, SABMiller, BAT, Standard Bank, Sasol and Anglo American. While there are two resource stocks among our largest positions, there are a number of resource stocks that we think are expensive and hold none of.” - Business Report
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