4 Years of Sideways Movement
Updated: Aug 24, 2018
How the political climate has inhibited normal market growth
Since January 2015 the Alsi40 index (above) has displayed much volatility but no or very little actual capital return. The last four years has yielded a meager 3% capital gain plus a dividend yield around 2.7% per year for each of the four years. During this time the Zuma Government’s graft, fraud, improprieties and state capture were methodically exposed and eventually toppled in December last year by Mr Ramaphosa. Economic growth averaged at 1.36% per annum.
In retrospect it is easy to see how the political climate has inhibited normal market growth. But at the time it is difficult to see the wood for the trees.
The Alsi40 (J200 is the JSE code and it can be seen in the graph above) followed much the same pattern as Midcaps and Smallcap but with two important exceptions:
1. The entry into the channel occurred in early April 2014, about 9 months before the
Midcaps and Smallcaps entered their respective channels.
2. The Alsi40 broke out of the channel in mid-2017 and proceeded with a bull run which
ended on 22 November at 54494, an all time high for the index. Thereafter the index lost
steam and bounced on the ceiling of the channel on 4 April 2018.
So, in early April 2018 the market returned to a feeling of rudderless despondency. It seemed as if the Alsi40 were back to where the Midcaps and Smallcaps were and have been since very early 2015. The same depression of the last 4 years hung over the market like a dark cloud. Between November and March, the ZAR was very strong: on 13 November it closed at R14.52 and strengthened to R11.56 on 23 February 2018.
But then on 5 April the market closed 1045 points or 2.1% higher. And since then the market has been quite strong, and sentiment has most certainly changed for the better. Yes, the ZAR$ exchange rate has been weakening since 23 February from R11.56 to the current R13.20. This would have been good support for the market, but we certainly feel that there is a change of sentiment, a new excitement, a spring bull in the air.
How we've fared compared to the USA
We have examined the co-movement between the Alsi40 Index, the New York Stock exchange Composite Index and the Standard & Poor’s 500 Index from 1995. The results from 1995 to April 2014 are as follows:
It is no secret that the Alsi 40 returns in dollar terms has been the best of all markets over a very long period. This is a well-researched subject. But see what happens to the averages when the last four years of very low performance is included:
Over a long period of time the Alsi40 has delivered sterling returns in dollar terms
These returns may be favourably compared with that of other competing emerging markets as well as those of developed markets. South Africa (our Alsi40) has been out of step with other markets between 2014 and 2017 and it has reduced our average return as shown above.
Over the last six months the movements in the Alsi40 has been very similar to the movements in the NYSE Composite. We believe the Alsi40 has resumed its co-movement with world markets.