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 income inequalities.
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 lines.
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 servants.
“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 rally.
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.
“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 Treurnicht.
“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.