For a stock market that has been routinely rocked by political upheaval and uncertainty over the past few years, the current dispensation is proving just the tonic to pep up investor sentiment. The JSE has chugged along convincingly for more than 100 days since the formation of the government of national unity (GNU).
Over the past three months the all share index (Alsi) is up more than 7%, and if taken since mid-April — when election jitters were setting in — the Alsi gain is an impressive 17%.
Of course, market pundits, especially those of a cynical bent, have been quick to point out that over the years the JSE has been buoyed by the handful of large global companies that have secondary listings here. That would be true with Naspers/Prosus — collectively the biggest listing on the JSE — spurting recently on Chinese stimulus packages.
But in recent months South Africa Inc stocks have come to the party too. The financial index, centred on the large five banking groups, is up more than 10% over three months, while the South Africa Inc-laden mid-cap and small-cap indices are up 8% and 8.5% respectively.
The lights signalling a rush of foreign investor buying have started to flicker. It’s possible to imagine that such flows might accelerate markedly as the US and other major economies drop interest rates again.
The usual suspects — shares that have traditionally been popular with foreign buyers — have already registered some nifty gains. Specialist retailer Clicks is up 15% over three months and 30% over six months. Fashion chain Mr Price is even more impressive: 30% over three months and nearly 60% over six months. Budget retailer Pepkor is up 22% and 28% over three and six months.
Food groups, also traditionally solid fare for foreign investors, have found strong support. AVI is up 16% and 45% over three and six months respectively, recently listed Premier 40% and 69% and Tiger Brands 13% and 17%.
The banks — arguably the touchstone for local economic prospects — have been buoyed too. Standard Bank is up 13% and 32% over three and six months, Capitec 17% and 49%, Nedbank 14% and 27% and FirstRand 6% and 32%. Even Absa, the sector laggard, is up 7% and 16% over three and six months.
Industrial conglomerates, with exposure across a slew of sectors, have been gradually stirred into motion. Hudaco is up 6% and 20% over three and six months, while Invicta managed 16% and 17%. Both Hudaco and Invicta trade on single-digit forward earnings multiples, suggesting the market is still tempering its enthusiasm for an enduring GNU effect.
Tourism and gaming stocks — Sun International, Tsogo Sun, Southern Sun, Zeda (car rental) and City Lodge — have all pepped up markedly as well. This anticipates clients with slightly more discretionary spending capacity as well as a general pick-up in business travel.
At this juncture it’s difficult to declare with authority that the GNU effect is mostly priced in. International interest rate differentials should, technically speaking, make the JSE — with lower ratings than most emerging markets — appealing to global investors. That capital is still at a proverbial trickle.
What will, in the interim, support and sustain firmer valuations on the JSE are improved results and dividend flows, which should be aided by the more upbeat business confidence levels, the continued ceasing of disruptive load-shedding and the chance of further interest rate cuts.
What would be even more encouraging for the JSE is a steady trickle of IPOs as the bourse launches initiatives to make the listing process less onerous. With retail investors increasingly attracted to the JSE’s value proposition with regard to South Africa Inc stocks, there might be a sweet spot of sentiment for smaller companies to tap into in the months ahead.
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