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.
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.