ALLAN GREENBLO: Why the soaring JSE has untethered from SA’s dismal economy
What a wonderful time to be in a retirement fund. Provided, of course, that equity prices hold steady through the inevitable blips or gradually exceed their record highs achieved by late January. Rarely could the contradiction between financial markets going up and business operations going down be more extreme.
Let’s hope this disconnect is because share prices are the harbinger of the good times ahead for actual economies. Were that so, there’d be reason to suspect that the 2020s would be as roaring as the 1920s. Sadly, however, you’ll probably recall how the 1920s ended: in the Great Depression.
There’s a similarly worrying aspect to the upsurge in share prices today – like a hot-air balloon having floated free from its moorings, being any quantifiable prospects for growth in earnings and jobs.
In the US –which leads the direction of global markets – it is the rush of individual speculators which has led to the equity boom.
With casinos closed during the lockdown, US punters forced to stay at home have turned to the next best thing. A new army of day traders found succour in the use of financial derivatives to beat hedge funds at the gambles of price manipulation. Recruitment to this army was enabled by the weaponising of social media.
The consequence: like the dotcom boom of the late 1990s, there has been a frenzy of options-powered retail trading. And let’s remember how that dotcom boom ended.
Less than a decade later, the dotcom crash was followed by the global financial crisis. Nonetheless, the rivers of cheap money created at the time of the 2008 financial crisis are just trickles when compared to the floods of “quantitative easing” now being applied to mitigate the destructive impact of the pandemic.
This tide of liquidity is supposed to stimulate economic activity, not to inflate asset values. But among major economies, such as the UK and US, as well as lesser economies such as SA, this stimulus has been counteracted by the stifling lockdowns.
So where is this money supposed to go? Part of it, thankfully, has gone into emerging markets — SA bonds are among the grateful recipients.
Keeping your nerve, and holding on
There are perhaps three factors that mainly account for the upbeat mood in stock markets: the launch of stimulus packages; relief at the reversal of tone in Washington, DC; and belief that the vaccine’s assault on Covid will break the pandemic.
These are, of course, solid enough foundations to modify the gloom that pervades SA. But as domestic share prices (Naspers notwithstanding) have surged in the slipstream of larger stock markets, the long-proven mantra for retirement funds has again been demonstrated.
The fact is, when markets collapse, it’s too late to panic. Better to hang in there. Those members who did stick it out when world markets hit a low in March last year will be sitting pretty today, less than a year later.
For example, in January last year, the JSE’s all share index (Alsi) stood at 56,828 points. But by mid-March when the Covid lockdowns started, the Alsi shrank to 37,963 points. Last week, at the end of January, the index stood at 63,206 points. Equally, the Satrix top 40 has gyrated from 4,987, to 3,462, and back up to 5,772, using those timeframes.
These are obviously huge changes over a relatively short period. And they have hit levels unprecedented even in the brightest economic circumstances — let alone where we are today.
The flip side is that there are people who couldn’t stick out the market gyrations — either because they had pressing immediate needs, or because they didn’t have a nest egg anywhere else.
Society has also been heavily disrupted in recent months, with inequalities being exacerbated between those with jobs and those without, those with incomes and those without, those with access to the internet and able to work at home, and those who cannot.
As always, the have-nots are in the overwhelming and growing majority. When talking of the jobs statistics, this narrative disguises the real threat of mass starvation in SA, which is being held at bay only by meagre social grants.
The only solution is economic growth. Yet there is a fat chance of that happening in the near term, given the devastation to major sectors and the erosion of tax revenues, caused by the government’s blunt measures to counter Covid-19. Growth requires confidence — and this is in dangerously short supply, since businesses have been worn down.
Still, human nature being what it is, people always look for an uplift. Maybe this will come in the form of a successful rollout of the vaccine. Maybe it will come in the form of prosecutions of those implicated in the frightening revelations before deputy chief justice Raymond Zondo. Or maybe it will come in the form of public sector trade unions agreeing to wage restraint.
Let’s hope it’ll be possible to witness all of these, without the lights going out.
Allan Greenblo is editorial director of Today’s Trustee (www.totrust.co.za), quarterly magazine mainly for the principal officers and trustees of retirement funds.
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