Growing market performance and our questionable economy.

Two things we discussed in previous newsletters are still happening in our market, namely:

  • the political climate and even the state of the economy are not necessarily reflected in the performance of the stock market; and
  • using the South African Top 40 Index as a measure of the broader performance of the South African stock market can be very misleading.

You may find it hard to believe, but the South African Top 40 Index is up 20% year to date and the broader All Share Index is up 16%. You may be forgiven for thinking that this does not reflect what you read in the papers every day regarding the situation in South Africa, with political turmoil; farm murders; state capture; rampant corruption; a not so impressive mid-term budget; and a 27% unemployment rate.

Under these circumstances you are not the only one thinking the stock market performance is too good to be true. The market commentators have been calling for a material correction in the stock market ever since it reached 49 000 points!

You may also expect your investments to reflect the 20% – or at least 16% – return for the year, but that is unlikely. Why? Because our Top 40 shares are dominated by three heavyweights, namely Naspers (up 71% ); British American Tobacco (up 17%); and Richemont (up 44%). So if you are a sensible investor, your exposure to these 3 shares should have been way below their weighting in the Index, especially because they were not cheap to start with.

And, with reference to our first point about the political situation and the state of our economy, the performance of these  three shares have very little to do with what happens in South Africa –  apart from the fact that they happen to be listed on our stock exchange.

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