JSE posts new record high
The value of South Africa's listed companies continues to surge - and with it, the value of thousands of investor's pension fund investments.
A quick look at a long-term graph of the All-Share Index confirms the massive bull market rally that has kept investors happy since May 2003. Returns have been phenomenal and equities have easily outperformed cash and bonds over the last five years. The only other investment that has come close to a similar return is property.
All-Share Index surges through 28, 000 points
The All-Share Index is a measure of the performance of the majority of shares listed on the JSE. While many analysts predicted a significant slowdown in 2007 it seems South African equities have found a second wind and continue to power ahead.
On 16 April 2007 the All-Share Index closed at another all-time high of 28, 379. This represents a 14% increase on the level at the start of the year.
There are a number of reasons for this continued strength. Many quote the sound local economic conditions. However, the most significant stock market driver remains the upbeat outlook for international commodity prices on the back of increasing demand.
The price of gold, copper, uranium, platinum and various other platinum group metals continue to increase at a staggering rate. Copper has risen more than 350% since January 2003. Over the last four years, Platinum has risen from USD 628 per ounce to USD 1,271 and lesser known platinum group metal Rhodium has flown from USD 500 to USD 6, 500 per ounce.
Getting ready to say goodbye to Edgars Consolidated Holdings
Shares in the retail sector have contributed to the JSE reaching its new high. They were stronger due to more certainty on the private equity buyout of retail giant Edcon. There had been some concern that the PIC (one of Edcon's largest shareholders) would try and prevent the deal from going ahead.
As it turns out, more than 80% of shareholders approved the deal - which means Edcon will soon be de-listed from the JSE. The deal is valued at some USD 3.5 billion and many market commentators suggest it will impact significantly on the value of the South African rand. In the short-term, this deal will probably bolster the local currency as the private equity group readies to bring in billions in foreign currency to pay for the deal.
In years to come, we could see a more negative impact as dividends and income from the group are taken offshore.
Banking sector higher on interest rate news
The banking and finance sector have also pushed higher since the last Monetary Policy Committee meeting. Reserve Bank governor, Tito Mboweni, announced last week Thursday that interest rates would remain unchanged. This neutral stance helped many consumer oriented shares - though warnings on the impact of higher food and oil prices should start hitting home soon.
We will not join the speculators who try and predict when the strong equity performance will reverse. For all we know, this bull market rally could be in place for another decade. What we will say is that the index has climbed very steeply in the last five years - and some form of correction or pullback is inevitable.
Editor's thoughts:
Financial analysts spend a great deal of time trying to predict when the next market correction will come. Do you worry about the next market correction - or are you a long-term investor who simply rides out the market wave? Send your thoughts to [email protected].
