Six decades of inflation-beating returns on the JSE

Despite short-term setbacks, the local market has delivered reliable growth over the long term.
Intervals of poor performance have not stopped the JSE from being a fairly consistent performer over longer periods. Image: Moneyweb

After five lean years, local stocks delivered a respectable return in 2019. The FTSE/JSE All Share Index (Alsi) was up 12% for the year, which was close to 8% above inflation. This is higher than its historical average of just more than 7%.

While this performance is off a low base, following the sharp decline at the end of 2018, it has nevertheless taken the Alsi to well above its 2015 and 2016 highs. The market also ended the decade comfortably in positive real return territory. Between the start of 2010 and the end of last year, the Alsi’s annualised return after inflation was 5.7%.

While this is below average, it is not the weakest decade for local stocks in recent history. In the 1990s, the JSE only managed a real return of 5.4%. This was despite 1999 being one of the best years ever on the local market, when the Alsi gained 61.4%.

As this short video from Corion Capital illustrates, the local market has delivered a meaningful above-inflation return in every decade since the 1960s. For the last five decades, the return has consistently been between 5.4% and 10.2%.

Source: Corion Capital

More ups than downs

What this shows is that despite experiencing a number of intervals of poor performance, the JSE has been a fairly consistent performer over longer time periods. Money invested in the local stock market has grown reliably, and meaningfully, ahead of inflation for the past 60 years.

It is worth considering that there have been some substantial disruptions to both the country and global markets over this time. From the Sharpeville massacre in 1960 to South Africa’s most recent economic stagnation, the country has been in an almost constant state of disturbance.

Globally, this period covers a number of severe market events. These include the stock market crash of the early 1970s, Black Monday in 1987, the Asian Crisis of 1998, the bursting of the Dotcom Bubble in the early 2000s, and the 2008 Global Financial Crisis.

The short-term picture presented by each of these events was extremely negative. Yet, over the longer term, the JSE has maintained a record of inflation-beating returns.

More from the middle

It is also worth noting that mid cap stocks showed a substantial recovery towards the end of 2019. To the end of September, the index had gone nowhere for three years, but the last three months of the year saw mid caps up 12.9%.

This led to an annual return from the Mid Cap Index of 15.6%. This was the first time since 2016 that the Mid Cap Index had outperformed the Alsi, although it still lags the headline index over five years.

Source: FTSE Russell

The fact that mid caps have underperformed for so long underlines what an unusual period this has been on the JSE.

Investors should always expect the Mid Cap Index to outperform the Top 40 as smaller companies generally have higher prospects for growth.

Mid caps have however lagged since 2014 as investors have stayed away from businesses primarily focused on South Africa. Many of the stocks in this part of the market are linked to the local economy, including retailers such as Pick n Pay, property companies like Redefine, and financial services companies such as Santam and Liberty.

While three months, or even one year, shouldn’t be seen as definitive, the stronger performance from mid caps in 2019 indicates that the market’s performance last year does appear more normal by historical standards.

The exception would however be small caps, which have continued to struggle. The Small Cap Index was down 4.1% over the last 12 months.



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The ease with which investors can now invest internationally will not be kind the the JSE going forward.

Only yesterday ABSA sent out a notification that it is delisting 5 of it local ETF’s due to lack of investor interest. Deutsche Bank is delisting the 3 ETN’s they have listed on the JSE.

This tells me that the JSE seems to be on a downward spiral and the PIC and Regulation 28 funds are propping it up. For how long will this continue?

Transformation seems to have a very adverse effect on the JSE. When the investors go elsewhere only beneficiaries will be left with little to “Benefit” from.

The past is not the future, Patrick. We live in a truly global world and the same applies to investments. You seem to be a torchbearer for the JSE but the facts, especially over the past 10 years, are against you. My concern is not the smart and well-informed investors: they have externalized their wealth long time ago. It is the ill-informed who read articles such as yours (and others) who seem to think they will be OK 10 or 20 years down the road when their JSE-based pension funds pay-out. On current trends, this is not likely to happen.
Most pension funds in SA have not beaten the inflation rate over 5 years. Is this not an issue of concern to you?
Why not publish a representative survey of the returns of Reg28 funds in SA? This will shock your readers, no doubt.

You should read Elke Brink’s article of 7 Jan. The performance of Reg 28 funds is depicted in there.

Also see the tweets from Mike Shussler yesterday regarding the decoupling of SA from Emerging markets. Its an eyeopener.

We then have these socialists / unionists / communists just following the path to total destruction. Can they not see what is happening?

It is difficult to comprehend that we have grownups running this country.

My point exactly. Let’s see what Elke’s stats show ( Morningstar and PSG).
Reg 28 versus global equity.
5 years(to end Nov. 2019)
7,17% vs 14,81%
3 years:
7,54% versus 15,76%.
Since inception (6 years to end Nov 2019)
8,38% versus 15,72%.

I am not sure whether this includes advisor and platform fees, which I doubt.

Another interesting fact(if not shocking):
The returns on cash beat Reg 28 funds on average over all of these periods.!!

Agreed and I keep saying the same thing; return in ZAR without reducing for inflation is pretty much meaningless. I would prefer a comparison or conversion to USD or Euros even; the FTSE comparison sort of provides it I know.

Let’s not, and say we did.

JSE cheerleaders always quoting returns during apartheid. Charming. I thought the country structurally changed? The cognitive dissonance is mind-blowing. The past is the past, move on boomers.

When a fund/asset manager sit with poor or sideways SA/JSE performance the past 4-5 years, and want to make returns to appear rosier, the typical trick using stats to your marketing material is that you add-in past periods of equity out-performance to lift the fund long-term average.

A familiar thing among the larger/older/’flagship’ SA Equity funds…irrespective of asset manager, is that:

The 10-year average fund return is typically a higher %
Then the 5-year average is pro-rata lower.
The 3-yr average return even lower than 5 yr average.

What does it tell you? The last few years dragged the averages down. Yes, the JSE may’ve been the best performing index the past 100-years (which includes a gold rush! Pity the Khoi-san, the Xhosa or Zulu tribes did not keep market records, as then one could take analysis further down historic performance 😉

A faulty assumption is based on the reason of “because the JSE had been the best market over past 100 yrs, the trend will likely continue”, or “we are cheap, so it has to rise at some point”.

Where is the Roman Empire’s financial index today?
Countries rise and fall. SA’s fortunes have been rising since colonial times, reached a peak in the 60s’/70’s and been waning since the 80’s/90’s….with the ANC speeding up the decline. SA will again become unnoticeable on the world stage.

The Zulu nation celebrated their 200th birthday in 2016. That is around 150 years after the “previously advantaged” arrived in SA. So there are seemingly some nations almost twice as old as the Zulu nation that might be able to shed light on this.

They were meticulous at record keeping if Stellenbosch church records are anything to go by.

Sorry for you if you came the last 5 years.

End of comments.



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