This is confirmed by the data. The chart below shows what the JSE All Share Index (excluding Naspers, whose sheer size would otherwise distort the numbers) did relative to cash, as a function of a change in the payout ratio (1990-spot). A decline in the payout ratio typically sees equity returns well above cash.
Early evidence suggests that the global growth fears expressed in markets at the back end of last year and the beginning of this year were overdone. Activity is picking up across the world with the exception of Europe.
This environment has historically seen a re-rating of the market as earnings growth picks up. The equity market is by no means a clear “buy” but we remain mildly optimistic, given the cyclically weak earnings growth and the ability for SA corporates to take advantage of any improvements in growth.
About the author
Chris holds an MSc (Statistics) and is a CFA. He joined Investec in 2007 as a quantitative analyst for the institutional equities team. He started covering strategy from the beginning of 2013 and headed up the research team from 2017. At the beginning of 2019, he moved to the Wealth and Investment (SA) Team as Chief Investment Strategist. He is also a member of the Global Investment Strategy Group and Chair of the Global Sector View Group.
Receive Focus insights straight to your inbox