The Jse Vs The S&P500 During Covid-19

The Money Market

Have South African Investors Really Missed Out On The S&P500 Rally?

During this time many investors have felt the need to flock to the S&P500 (American Market) so that they do not miss out on the rallies occurring on that market. The question is, have South African investors on the FTSE JSE really missed out on the S&P500 rally? The short answer is ‘no’. The world is a lot more interconnected than we might think, technology shows us this. However, how does this interconnection translate between the FTSE JSE All Share (South African Market) and the S&P500 (American Market)?

Looking at the S&P500’s major historical crashes, COVID-19 was one of the sharpest falls since the Great Depression. Not only that, but the speed of the recovery has been absolutely mind blowing. The companies driving this recovery are called the FAANGS group: Facebook, Amazon, Apple, Nexflix and Google. However, these companies are not listed on the FTSE JSE, so what has been happening in the South African market? Most market commentaries on South Africa focus on the economic and political tensions, weakening of the rand, corruption and false statements of 50% drop in GDP.

With much surprise to some, both the S&P500 and FTSE JSE experienced similar returns from the period 23 March 2020 to 15 September 2020. With S&P500 at 34,7669% in ZAR terms and FTSE JSE at 36,7152%. We actually saw a bit of an out-performance from the FTSE JSE in ZAR terms.

Looking at the graph below we see how similar the daily movements between the two markets are during some periods:

There are times where the markets are actually quite correlated (they seem as if they are moving together) and then other times when the S&P500 is down the FTSE JSE is up (the grey line is above the orange line) and vice versa. Both markets have volatility, both experience losses and gains. Although they are not correlating exactly, the deviation bands (highs and lows) seem to be relatively similar at times.

Taking another look at other variations of the  FTSE JSE ALL Share, we compared other South African equity indices against the S&P500. We compared the accumulative returns across the JSE All Share Index, JSE Capped SWIX Index and the JSE Top 40 against the S&P500 for the period 23 March 2020 – 15 September 2020.

The Return story here was quite interesting. Of the different JSE indices, all but one outperformed the S&P500 in rand terms. The JSE Capped SWIX only under-performed the S&P500 by 0,93%.

The Return Story:

In essence, if you invested R10, 000.00 on the 23 March 2020 and if you stayed invested for the period until 15 September 2020. The return journey would have been:

How is this so?…

“In reality, the South African equity market mirrors less of the ‘heartbeat’ of the South African economy and rather reflects what is going on in the rest of the world”- Brian Thomas. The South African stock market has a larger global exposure baked into performance than we can see at face value.

Cephas Dube, a portfolio manager at Fairtree and Fairtree Invest, likes to summarise this into three reasons:

1. There are international shares listed on the JSE.

Some are more obvious than others like, (BAT) Brittish American Tobacco, and Richemont. With Tencent being one of the largest linked assets to Naspers and Prosus, these too could be considered international shares. The evidence of this can be seen in the performance of the JSE Capped SWIX.

2. Rand-Hedge stocks.

Here, value is derived largely from sources outside of South Africa, an example of this would be Implala Platinum.

3. South African companies that are invested overseas

The Foschini Group is a great example here. Many would believe that because these are South African brands, it would mean that it is only exposed to South Africa. This is not the case. 30% of the group’s revenue is derived outside of South African in countries like UK and Australia.

If you continue this process across each stock listed on the FTSE JSE All Share Index, breaking up each company into ‘the measure of income made in South Africa’-  only 21,1% of companies derive their income from South Africa (SA Inc) on the FTSE JSE All Share Index (SA Inc). The optimist would say that at least our SA equity market has a great geographical diversity.  As a high level snap shot, the geographical drivers of the JSE are:

Yes, the South Africa economy is in a sticky place, it was that way even before COVID-19 entered 2020. However, as we have seen, SA Inc drivers as a stand-alone, did very little to contribute to the returns of the FTSE JSE All Share Index. Since March 2020 lows, international stocks listed in South Africa (market cap weighted), carried the performance of the market, generating 54% of the return in ZAR terms. When you include the rand hedge element as well, about 60% of the returns generated during this period have come from outside of South Africa. It is because of these weightings that in Rand terms the FTSE JSE All Share Index recovery was quite on par with the S&P500 recovery.

From a Fairtree point of view, we see great value in the JSE and global markets. That is why our portfolios blend them together, to really optimise return stories and diversity. We blend multiple – asset classes across a range of geographically diverse markets, both in developed and emerging markets.

For more details please speak to a Fairtee consultant or contact us

–    Kheara Lugg and Annerie Vosloo

Article Credits: Have South Africans missed the US recovery – Brian Thomas September 2020, and

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