The JSE all share index closed at a record high on Wednesday as stimulus from China and last week’s repo rate cut saw money flowing back into the share market.
Easing inflation led the Reserve Bank to lower policy rates as the global economy heats up after a bumpy ride since the latter part of the Covid-19 pandemic.
After hitting a low of 40,272 points in March 2020, the all share index ended 1.4% higher at 85,960 points on Wednesday, its fourth positive session running.
As SA emerged from the pandemic the all share peaked in February 2022, only to be hit hard when Russia invaded Ukraine, a move that sent shock waves through global markets.
Commodity prices surged, and supply chain disruptions intensified, causing the JSE all share index to fall to a trough of 63,263 points by end-September 2023.
Though initially not expected to last long, the war has dragged on, causing anxiety in world markets. Rampant inflation simultaneously caused interest rates to rise rapidly to decade highs in some cases.
This resulted in a flight of capital from shares to the safe haven of the dollar, gold and fixed-income instruments such as bonds. China, SA’s largest trading partner, has had a bumpy ride coming out of the pandemic, with its government on Tuesday announcing a major stimulus package to get growth back to earlier levels.
“Markets are pricing in the possibility of a trend reversal in cyclical growth after Chinese authorities announced an aggressive stimulus package, which will bolster its economy,” said MyWealth CEO Annatjie van Rooyen.
The stimulus package is designed to address pressing economic issues, including weak credit demand from businesses and consumers, as well as unresolved problems after large devaluations in the country’s property sector.
“Central banks are moving in tandem with the cutting cycle in interest rates that was affirmed by the Fed delivering a jumbo cut of 50 basis points last week.
“The turn in the interest rate cycle is positive news for equity markets and should bring the long-awaited relief that consumers need,” said Van Rooyen.
A day after the Fed cut rates, the Reserve Bank’s monetary policy committee cut the local repo rate by 25 basis points to 8%.
At the start of the year, analysts were predicting a far quicker start to the cutting cycle, which was delayed by stubborn inflation globally.
The Chinese package includes increased funding, interest rate cuts, and specialised tools to stimulate the property and capital markets.
“Any policies that aim to boost China’s economy typically raise expectations for increased trade between China and SA, thus supporting the SA’s commodities and the rand,” said Wichard Cilliers, director and head of market risk at TreasuryONE.
After the news from China, the metals index on the local bourse rallied, with industrial metals rising 6.21%.
Van Rooyen said that tailwinds in the form of lower inflation, lower interest rates, improved economic growth, and, for SA, the ideology of the rollout of reforms by the government of national unity (GNU), underpin a continued recovery in the JSE.
The all share and the top 40 have gained 11% so far this year, with the latter having recovered 26% since mid-2021. Global markets were on a high this week with the Dow Jones industrial average and the S&P 500 reaching new records.
Van Rooyen cautioned that the markets were entering the cyclical volatile last quarter of the year.
“It would be wise for investors to focus on valuations before getting overenthusiastic as the uptrend can be derailed in the short term by an escalation in geopolitical tension, disappointing labour market data from the US, an unwelcome US election outcome, as well as turbulence in the policy execution of GNU,” said Van Rooyen.
Update: September 25 2024
This story has been updated with new information throughout.
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