The South African stock market has recently appeared to be a trap for companies and individuals who do not earn revenue in strong currencies due to the low-price trade to earn multiple on JSE.
Charles de Kock, the coronation portfolio manager, highlighted this by indicating where their multi-asset portfolios are investing their client’s money in the current environment.
The stock market in the world’s developed countries has experienced a notable increase in the third quarter of the year, with the S&P 500 posting new all-time highs. Europe and Japan also experienced massive stock market growth, with the Nikkei index in Japan surpassing its 1989 high.
De Kock explained that the growth resulted from the consistency and resilience of the US economy regardless of the up-cycle in interest rates. The US has experienced more stock growth and a reduced unemployment rate. Companies have been earning healthy ROI, which is visible in the US stock market chart.
Contrary to the US, the South African economy has continued to experience a downside national rate, hampered by an ageing infrastructure and poor maintenance.
Its lack of a power supply and an efficient transport system, such as rail, to facilitate its exportation business has restrained its growth.
De Kock said, “It is no wonder the performance of South Africa Inc.” stocks have been poor. Many of these stocks are trading at very low multiples and appear cheap, but Coronation is wary of falling into value traps.”
He added that the country’s national election on 29 May 2024 presents another headwind to economic growth and, thus, financial market performance in South Africa. However, Coronation’s multi-asset fund will grant it access to global assets by listing its business on JSE to increase its client wealth.
