CAPE TOWN - There is risk of a second sell-off of shares this year due to a possible worsening of the global Covid-19 pandemic locally and abroad, and the growing vulnerability of the US economy.
Moving with most stocks markets around the world, the JSE All Share Index (Alsi) has staged a relatively healthy recovery from its March lows.
The index was trading at 50019.69 points on Friday, which is a 34.5percent recovery from the 52-week low of 37177.92points that it traded at in March.
But it is a partial recovery. The 150 companies that make up the Alsi are still trading 14percent lower on average than they were on February 17.
Investors seem more positive in the US. US markets fell 33percent, the biggest monthly decline in US history, in March. They then staged a 30percent recovery in April.
The S&P 500, an index of 500 New York Stock Exchange-listed companies, was at 2881.19points on Friday, and it is 14 percent below the 3370.29points it reached on February 18.
US stock valuations have soared on the belief that a recession will be headed off, listed companies will benefit from massive fiscal stimulus, equivalent to 10percent of US gross domestic product, and the belief that vaccines are on the way, which will conquer the Covid-19 virus.
Some seriously downward pointing indicators are being ignored.
Many current predictions are for global growth to fall this year (the International Monetary Fund forecasts a 3percent decline) due to the fallout from the pandemic.
More than 20.5 million US citizens lost their jobs in April, as economic output plummeted due to lockdowns and other Covid-19 related measures.
The infection rate in the US shows no sign of abatement - the US had 1.21million infections, had recorded more than 73200 deaths, while the infection rate remained above 20000 per day, on Friday.
The economy in China, the second biggest and an engine room of commodity and global manufactured product demand, contracted 6.8percent in the first quarter, the first decline on record.
Econometric chief economist Dr Azar Jammine last week questioned how rising share prices were justified, given the weak global economic outlook, the uncertainties still presented by the Covid-19 virus and the ability of governments to deal with the pandemic.
Some analysts have tried to justify the market disconnect with reality, with an argument that markets essentially reflect what is ahead, and while the US economy was in dire straits currently, some indicators had bottomed, and companies were restarting operations.
On the JSE, the risk of further global market contagion this year is further compounded by the well known structural problems with the local economy, the additional strain of the lockdown on company earnings, and a fast weakening fiscus from rising government debt, higher interest costs, lower tax revenue, and rising state expenditure.
All this makes investing on the JSE seem very risky indeed, even though there are always winners and losers on the market.
More positively, Dr Jammine suggested some sectors that he believed would grow strongly in future, such as medical equipment, generic therapies, education and technology, digital communications, robotics and automation, security systems, environmental friendly innovations, waste management, products for ageing populations.
The top volume mover on JSE on Friday was Redefine Properties, with some 37.36 million shares changing hands by mid-afternoon. The share price was 2.53percent lower at R1.93 at that time.
Redefine has a R90billion portfolio in South Africa, Australia, Poland and in the UK, which makes earnings well diversified. Last Monday, however, it said it would defer its interim dividend following a 32percent decline in distributable income.
Redefine’s shopping centres, industrial and office property assets were valued at R71.3bn (R72.8bn) at the end of February, while the international properties were valued at R17.9bn (R22.6bn). The company claims to have sufficient liquidity to absorb pressure.
The biggest share price gain on Friday was paper and pulp multinational Sappi, which was up 12.05percent to R27.05 late Friday afternoon. The company had reported a substantial slide in profit to $2million (R36.6m) in the quarter to end-March 2020, well down from $72m at the same time last year.
The group was not yet been substantially impacted by Covid-19, with historically low dissolving pulp prices accounting for most of the decline in profit. Lower profit was anticipated in the third quarter. It’s hard to see any reasons for Friday’s share price exuberance.
The steepest share price decline was Capital & Counties (Capco), the UK-based group with property assets mainly in London’s West End. The share price fell 5.29percent to R34.19 late Friday afternoon. It was trading at an eye-wateringly high price earnings ratio of around 89.
Although most of its tenants are closed, Capco is well capitalised, with some £370 million (R8.8bn) in cash and some £700m in undrawn debt facilities available. The share price slide was likely due to a share overhang from the Public Investment Corporation last week reducing its stake in Capco marginally to below 6percent.
The biggest mover in terms of value on Friday was, as usual, Naspers. Its share price was up 2.53percent to R2981.50. Naspers, which has China’s biggest company Tencent as its crown jewel among its other global online businesses, has pencilled in some $8bn that is available in cash and debt facilities for acquisitions, in spite of the coronavirus pandemic.
The share price on Friday moved roughly in line with other Asian markets. The Nikkei 225 index was up 2.56percent and the Hang Seng Index was up 1.04percent.
Imperial, the sourcing, warehousing, transport and distribution group, rose 6.57percent to R41.04 on Friday. It was the second biggest share price gain on the market. The share is highly rated.