Why SA shares hit a record high - despite domestic gloom
- The SA stock market rallied to reached record highs on Monday.
- This is despite a raging pandemic in the country, and economic gloom.
- But overseas investors have started to buy local shares as global optimism increases.
- For more stories, go to www.BusinessInsider.co.za.
On Monday, the JSE’s all share index rocketed to levels never seen before, even as South Africa’s economy continues to be roiled by the coronavirus pandemic.
Monday's rally was in large part thanks to a 7% gain in Naspers, which is one of the biggest shares on the bourse. Via its subsidiary Prosus, Naspers owns a 31% stake in the Chinese tech behemoth Tencent.
Investors in Asia have been piling into Tencent ahead of the Hong Kong listing of short-video service Kuaishou Technology, a TikTok competitor. The company is backed by Tencent, and could raise more than $5 billion, which could make it the world's biggest tech listing since Uber, reports Bloomberg. The SA market also received a boost from Monday's 11% rally in Woolworths, which reported stronger-than-expected sales. On Tuesday, the local market started to retreat, but Woolworths' share price continued its rise.
The JSE is now 11% higher than at the start of 2020, before the pandemic, hard lockdowns and job losses wreaked havoc on the local economy.
Currently, the country is struggling to contain a massive second Covid wave, while failing to secure the necessary vaccines, and its retreat back into Level 3 is causing immense economic strain.
So why the rally on the local market?
Nick Kunze, a senior portfolio manager at Sanlam Private Wealth, says the JSE is benefiting from new optimism among global investors, particularly about the impact of US president Joe Biden’s proposed new $1.9 trillion pandemic relief package that is expected to be passed by Congress this week.
The more optimistic tone on the US market and elsewhere has made investors more confident, and willing to take on more risk - particularly on emerging market investments.
“All of a sudden, because of this increased risk taking (...) emerging markets are suddenly in favour,” says Edgar Mafoko, portfolio manager at FNB Wealth and Investment.
So far this year, foreigners have bought almost R10.6 billion more in South African shares than they have sold, JSE data show. In the same period last year, they were already the net sellers of R4 billion in SA shares.
In recent weeks, investors have finally starting buying long-shunned shares in companies that are focused on South Africa.
Mafoko says Woolies' strong trading update - along with other "very good results" from local retailers helped to restore confidence.
“The consumer isn’t in as bad a space as we thought." But he warned that there is still much gloom ahead for the local economy, with the impact of increased unemployment that will probably only still come through later on in the year.
“Our fundamentals haven’t changed locally. Economically it’s going to be a very gloomy year. We’re expecting disappointment after disappointment,” he said.
Mafoko expects that Naspers and Prosus should continue to remain strong this year, and expects more gains from platinum and gold mining shares, on the back of China’s continued economic recovery which is driving an increased demand for commodities.
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