A cursory glance at international market indices leaves one with a feeling that the world is an unfair place.
While South Africa is repeatedly told that our economy has withstood world market upheavals better than any other — including the economies of the United States and Europe — our markets are faring badly compared to theirs.
The JSE/FTSE top 40 index is down 18,4% for the year. Contrast this with the Dow Jones, which is up 2,73%, or the tech-laden Nasdaq, which is up 12,48%. Across the Atlantic, the London bourse is up 1,33% and in Continental Europe, Germany has gained 4%.
While we can explain the JSE’s performance as a reflection of its heavy resource bias being hammered by the rand’s strength, it is puzzling that markets in ailing economies
appear to be doing well. Truth is, the world is still reeling from a hangover after the tech bubble burst at the turn of the century.
Clive Stoutjesdyk, a private client equity analyst at Investec Securities, provides some perspective. “International markets seem to be doing well because they are recovering off a low base,” he says. Since the uncertainty of war dissipated in mid-March, there had been a steady stream back to the US and UK markets as
investors sought to buy cheaply.
The London market, which ironically suffered more than that of its war ally, is a case in point. This week, the FTSE 100 broke through a key technical level of 4 000 points for the first time since early January, having touched a low of 3 287 on March 12.
Stoutjesdyk rates its recovery as among the most impressive, attributing it to low interest rates around the world and increased government spending, most notably in the US. The US also had a “respectable” growth in earnings from operations of 5% last year.
Stoutjesdyk also points to a recovery in spending by technology firms, burnt beyond recognition in 2000.
One gains a sense of perspective if one looks at where the markets were at the height of the boom. If you invested in IT, look away: despite a mild recovery, the Nasdaq is down 70% from its record level of 5 133 on March 10 2000. The rest of the world tells only a slightly less harrowing story .
Martin Jankelowitz, head of markets and economic research at Investment Solution, finds very little to cheer about internationally.
Jankelowitz believes US equities are overvalued on an earnings and dividends basis. “People keep saying that the financial markets are assuring us that things will be okay and there will be a recovery soon. I am not convinced”.
“Bond yields should be rising and the dollar strengthening,” he insists, but this is not happening. His advice to investors is to take a long-term view and not to “try timing the markets”.