South Africa’s economy may be hurting, but our market seems to be booming.
The JSE’s market capitalisation is back to pre-crisis levels, with its weekly statistics report showing a value of R5.16-trillion — up from lows of R3.8-trillion last year.
As the economic crisis began to take hold in South Africa the JSE lost more than 30% of its market value during November lows.
While current growth in market cap is only at a marginal 0.07%, it is back in positive territory following a 34% recovery.
Positive market sentiment sits uncomfortably with worrying economic data and dire corporate results, which emerged this week.
While consumer inflation fell on Wednesday, fuelling hopes that the Reserve Bank may once again cut interest rates, the consumer price index (CPI) remains outside the target range of 3% to 6%.
In addition, wage negotiations currently under way nationally have seen demands for double-digit increases, causing concern that these will negatively affect inflation expectations.
CPI slowed sharply to 6.9% in June, from 8% in May.
Credit conditions in South Africa have also deteriorated significantly as both private sector companies and ordinary consumers feel the recession hit home.
Private-sector credit extension, or money loaned to the private sector of the economy, fell to 4% in June from 5.7% in May.
In a research note, Investec highlighted that total consumer credit is at levels last recorded in the late 1960s, ”indicating the severity of the domestic recession”.
”These figures show how financially strained consumers are after years of debt-funded consumption expenditure.
”Consumers have began cutting back on credit usage as a result of bleak income-growth prospects and potential job losses in coming quarters,” it stated.
Employment figures have also continued to slide as retrenchments take place across economic sectors.
Unemployment increased marginally from 23.5% in the first quarter of 2009 to 23.6% in the second, or a total of 267 000 jobs shed.
Most job losses, a total of 105 000, came from the private-household sector, with 68 000 of those being domestic workers. Domestic worker retrenchments point to further pressure on local households as they readjust their balance sheets, according to Investec.
Meanwhile, results for large companies published this week have been less than stellar.
Anglo Platinum announced interim results reflecting a 68% drop in profits and cash flow down 94% to R642-million.
The company indicated that it would be aiming for a reduction of 10 000 staff during 2009, while it was deferring expenditure on a host of operations in a bid to conserve cash.
But trade union Solidarity announced on Wednesday that Anglo Platinum is considering further retrenchments at its head office and will be looking to cut staff by 35%; while parent Anglo American is considering cutting staff at its head office by 25%.
Anglo American is expected to release depressing results on Friday while it fights to hold off a merger with its Swiss-based rival, Xstrata.
The local arm of steel producer ArcelorMittal recorded a loss of R848-million for the first half of 2009. The losses came on the back of declines in both the prices of steel and demand, which were further set back by high inventory levels.
Changes in consumer spending have been reflected in other company results such as those of vehicle trader McCarthy, which had a 6.4% increase in the sale of used vehicles in the past year, while new vehicle sales dropped by 31.6%.
