Patrick Lawlor of Investec Securities noted that this week is exactly one year since the S&P 500 hit rock bottom, with the index touching 676 on March 9 2009. Since then, the United States markets have rallied a massive 68%. While still off their highs of mid-2007, it is a sharp reminder that timing markets is a tricky game. By the time the time investors felt confident enough to re-enter the market, most of the gains had already been made.
Lawlor points out that our local market has done decidedly better as investors went in search of higher growth in emerging markets, and commodities staged a strong recovery. In US dollar terms the JSE has returned 126% since March 9 last year, thanks in no small part to rand strength in that period, and is “only” 15% off its highs of October 2007. Dollar-based investors are no doubt smiling all the way to the bank, and even in emerging-market terms the JSE has performed well compared with the MSCI Emerging Markets Index, which is up 103% since March 9 last year.
Lawlor says that while investors are naturally hoping for more of the same this year, much will depend on how the factors that have driven the market to this point pan out into the future, particularly monetary policy, which has been very loose since the crisis of late 2008.
Already we have seen many emerging economies and commodity-producing countries considering increasing their interest rates. Some have even begun to do so in the case of China and Australia as they experience a return to robust growth.
Even in South Africa our growth figures have surprised on the upside and business confidence levels jumped well above expectation. However, in larger economies such as the US and Europe higher interest rates are still some way off as they struggle with their debt burdens. While the future still remains uncertain in terms of a global sustained economic recovery, Lawlor says that for now there seems to be a solid underpin to sentiment, so the party may continue for a little while longer.