Picture: 123RF/RATTANASIRI INPINTA
Picture: 123RF/RATTANASIRI INPINTA

The JSE is on track for its worst year since 2008 and is trading at its lowest levels since June 2017 as a “risk-off” global environment weighs on emerging market assets.

The FTSE/JSE all share index (Alsi) is down 8.56% in the year to date to 54,409.47, its worst performance over the same period since the global financial crisis in 2008, when the Alsi shed 20.5% in the year to October 5.

September was the worst month for the all share since June 2013, with the index shedding 5.05% in the month. This is despite a weaker rand, which tends to support so–called rand hedge stocks — companies that earn a significant portion of revenue outside SA. 

The weaker performance is linked to risk-off sentiment emanating from the US, where the US Federal Reserve is set to increase interest rates further, with US Treasury yields rising sharply to seven-year highs last week.

This is all occurring against the backdrop of increased trade tension between the US and China. Local political developments also contribute to a global view that SA remains a risky place to invest.

However, analysts believe the potential upside for the Alsi outweighs further possible downside.

PSG Wealth portfolio manager Schalk Louw said the all share is fast approaching real levels last seen in 2008, based on his technical model which incorporates price:earnings data, dividend yields and price-to-book levels.

“However, based on this, the potential upside from present levels is at 14%,” he said.

Louw said the market presented many opportunities, including resources, the best performing index to date this year. “Although some investors might be tempted to sell miners at present levels, I think the sector still offers some opportunities,” he said.

The SA resources index has gained 18% to date in 2018. In contrast, general retailers is down 18%, industrials 16% and banks 12.8%.

Rand hedges have been a mixed bag. British American Tobacco has lost 20% and Naspers 16.3% in 2018. But Mondi has risen 24.2%; Anglo American is 26.6% firmer over the same period and Anglo American Platinum has gained 36.7%.

Louw is less optimistic on Naspers’s prospects. He notes that Chinese internet company Tencent, in which the Cape Town-headquartered media company owns a 31% stake, remains the main driver of Naspers's market valuation. Tencent is trading at its lowest levels since July 2017.

“The regulatory gaming environment in China still does not favour Tencent, but is probably outweighed on the positive side by the group's recent acquisitions,” he said.

Based on a technical analysis, 55,000 points remain pivotal to the JSE's fortunes. After hitting a record high of 61,595.85 points on January 26, the all share has dropped below 55,000 on three occasions since. It has rebounded from these levels, though.

Old Mutual investment strategist Dave Mohr said a notable feature of the JSE is the extent to which JSE-listed companies have gained more international exposure since 2008. In dollar terms, the all share’s return of 6% per year over the past decade has not been out of line with other major non-US markets over the period.

He said a lagged effect is notable with a weakening rand. The rand has depreciated by 6% annually over the past decade, but the resources sector only returned 1.9%.

“However, the sector is the best performer this year, although the 2014 peak has not been regained,” Mohr said.

Stanlib retail investment director Paul Hansen notes that the JSE has underperformed the US stock market hands-down over the past three years.

History shows that stock markets go through weak patches. “But they are likely to pick up again, despite the risk.”

The JSE all share closed 1.13% lower at 54,409.50 points on Friday and the top 40 dropped 1.33%. Resources shed 1.94%, banks 1.43%, industrials 0.97%, general retailers 0.8% and property 0.62%. The all share ended the week 2.33% lower. The rand was last seen at R14.7685/$  from R14.8676, with local bonds also under pressure, as the yield on the benchmark R186 rose to 9.235% from 9.19%.

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