• South Africa is enduring the longest downward business cycle phase for over 73 years, according to the SA Reserve Bank.
  • About 36% of the companies listed on the JSE have depreciated by 15% or more this year.
  • The sell-off has continued into October, with banks off 7% last week 
The South African economy is in the midst of its longest business cycle downturn in more than 73 years, according to the Reserve Bank, and things aren't looking particularly favourable right now either.

The adverse business climate has impacted the stock market too this year, seeing listed companies declining year-to-date on the whole. 

According to analysis done by Corion Capital, a boutique hedge fund manager, 60% of listed counters had depreciated by the end of September, with more than a third slumping in excess of 15%. Only 16% of the stocks in the All Share Index gained more than 15% this year to end-September.

Performance of JSE-listed shares in 2018. (Corion Capital)

Topping the list of poor performers are Tiger Brands, off more than 40%, two healthcare companies, Aspen and Mediclinic, MTN, and Woolworths.

Performance of the top 40 JSE shares. Tiger Brands and Aspen were the biggest losers, while Sasol and BHP Billiton were the top performers. (Corion Capital)

And the sharp sell-off has continued into October, with only the Resource Index managing to gain ground last week and the Banks Index hardest hit, losing 7%.

Garreth Montano, a director of Corion Capital, puts the bout of negativity swamping investor sentiment this year down to:

- Low GDP growth. South Africa has unfortunately missed out on a resurgence in the world economy and has been left well behind in terms of GDP growth. The reasons behind the sluggish performance of the domestic economy can be debated at length, but many view the Zuma era as a large contributor to the underperformance of SOEs, heightened corruption, lack of job creation and lack of investor confidence in attracting foreign direct investment.

- The land debate and mining charter have further dented prospects of new investment, which would aid growth as well as assist in creating new jobs. All of which are dearly needed.

- Many commentators believe that president Ramaphosa’s hands are tied until general elections, and the righting of the ship and benefits to the economy will start gaining momentum once there is more clarity around the land issue and elections are behind us.

To add to these internal challenges, emerging markets, as a whole, have had a difficult 2018, being largely led down by the crises in Turkey and Argentina. Trade wars have also had a negative effect, creating concerns about a drag on emerging markets exports due to potential for tariff impositions by the US, Montano says.

Locally the negative sentiment towards broader emerging markets has played out in large outflows fromn our bond market, as well as foreigners selling off equities, says Montano. Last week almost R6bn alone was taken out of South Africa by foreign investors.

These disinvestments have also played out in currency markets, driving the rand dramatically lower to more than R15 to the dollar at stages compared with its peak of almost R11.50 in February this year.

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