South Africa's stock
market defies recession, scales record highs
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[July 31, 2017]
By Ed Stoddard and TJ Strydom
JOHANNESBURG (Reuters) - South Africa's
main stock index scaled a record high on Monday, underscoring the
market's disconnect from an economy mired in recession, hobbled by
damaging ratings downgrades, and still largely defined by apartheid's
Skewed ownership patterns have made the Johannesburg Securities Exchange
(JSE), which has been mostly lifted by the offshore earnings of a few
companies, a prime target of political resentment in a country where the
divisions between haves and have-nots still run largely along racial
Almost half of the market is foreign owned, according to JSE data, and
black people who account for 80 percent of the population only hold 23
percent of the top 100 companies, much of it through the Public
Investment Corporation (PIC) which manages the pensions of civil
"There is white dominance and control of our economy. Today when you
remove the ownership by the (PIC) pension fund from the stock exchange,
the remaining 90 percent belongs to white families," the leader of the
far-left Economic Freedom Fighters party Julius Malema said at a weekend
Those who don't hold equities would include the vast majority of the 17
million people, a third of the population, who reside in the former
Homelands, islands of rural poverty where most black South Africans were
confined under white rule.
South Africa's official unemployment rate is around 28 percent but
widely regarded to be well over 40 percent and few of those without a
job, the vast majority of whom are black people, would hold any shares.
The starkness of the divide is highlighted by the financial district of
Sandton where the JSE is located: a bustle of construction activity
where ornate office towers are being erected on every block and huge
cranes reach skyward, a fitting metaphor for a market at historic highs.
SOUTH AFRICA INC NOT BEHIND RALLY
Sandton's apparent prosperity is a contrast to the JSE's construction
index <.JCONM>. Ground firmly in the wider local economy, it is down
about 20 percent from its year highs reached in March and is almost 80
percent off its life high hit in 2007.
The bourse's performance - the All-share index <.JALSH> rose 0.85
percent in early trade on Monday to a new peak of 55,366.74 - has been
driven by foreign flows into equities and earnings garnered offshore.
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Workers are seen at a construction site in Sandton, Johannesburg,
South Africa June 20, 2016. REUTERS/Siphiwe Sibeko/File Photo
"It is the case that a handful of shares not linked to the South African
economy's fortunes have done well," said Feroz Basa, head of Old Mutual's Global
Emerging Markets Fund.
Naspers <NPNJn.J>, a newspaper publisher turned global e-commerce giant which
accounts for over 20 percent of the JSE's market capitalization, was largely
responsible for the JSE's run, having risen sharply as investors see it trading
at a large discount to its one-third stake in China's Tencent.
Naspers, trading close to an all-time high and up 42 percent so far this year,
has its primary listing on the JSE, and luxury goods group Richemont <CFRJ.J>,
which has a secondary listings on the bourse, is up 21 percent.
Only about 35 percent of the companies listed on the JSE derive all their
earnings from South Africa, said Gryphon Asset Management analyst Cassie
"Our [locally focused companies] have really underperformed recently and if you
look at small and medium cap shares it is hard not to notice the effect of the
recession," said Treurnicht.
And big companies exposed to South Africa's battle-bruised consumers, such as
retailers and banks, have "underperformed significantly", Basa said.
Consumer sentiment is plumbing multi-year lows and most retailers have flagged
lower or stalling profits, with the demise of unlisted department store
Stuttafords an ominous sign for other retailers.
South Africa fell into recession in the first quarter of 2017 for the first time
in eight years, with high unemployment and stagnant wages dragging down the once
resilient consumer sector.
(Editing by James Macharia and Susan Thomas)
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