Although earnings growth numbers for JSE-listed shares appears to be peaking, earnings growth rates should be sufficient over the next two years to support share price increases of, on average, 10,5%, says Absa chief economist Christo Luüs. “This could occur even if moderately lower valuations are assumed.”
“Investors on the JSE once again received some remarkable returns on their equity investments in the early part of 2006. The annualised return in rand terms amounted to 72% in the first quarter of 2006. Because of a stronger rand in the first quarter, the equivalent return in United States dollar terms was even higher and amounted to almost 93%.
The South African equity market performance was well ahead of the general performance of emerging equity markets.
Luüs adds that other factors that maintained the bourse’s excellent investment returns include the good performance of the listed property sector, strong inflows of foreign capital and growth in company profits.
“By the end of March 2006, foreigners had, on a net basis, bought R33,9-billion-worth of South African equities. In 2005, this same level was only attained by early August, and was 270% more than the cumulative figure at the end of March 2005.
“Growth in company profits also picked up, with earnings growth reaching 37,5% year-on-year while listed property had an excellent quarter, posting an annualised return of no less than 120% in rand terms and 146% in dollar terms.”
He says although the rise in the gold price greatly fuelled the new buying interest in equities, the huge gold-price escalation was triggered by renewed geo-political tensions, higher oil prices and lingering concerns regarding the prospects of the US dollar and global financial stability.