Johannesburg - Equity markets saw a dramatic rebound in 2009 as the global economy eased out of a recession, derivatives
trader Andrew Bryson said.
Bryson highlighted that the general consensus was that there would be continued gains in global equity markets into next year.
"A low interest rate environment and massive stimulus measures from the world's developed markets boosted global liquidity and led to massive flows into equity markets this year," he said, noting that emerging markets had been the main beneficiary of global equity fund flows as investors chased returns and reduced their cash holdings.
"On our own market foreign inflows into our equity market amounted to over R70bn which more than made up for the outflows from 2008.
"For the year our All Share Index is up nearly 30% with our diversified miners and platinum counters dominating gains," said Bryson.
"The general movement of equities in 2009 was very strong," a second trader said, noting that from the lows in March 2009, the market had gained
more than 50%.
"Strong inflows form international investors helped the JSE to be up almost 100% in dollar terms," she said.
She further noted that the strong rally was helped by stimulus packages from government's world wide as well as by better than expected economic data in the past few months.
"We have seen our miners recover well from the recent downturn in global markets, as commodity prices rebounded and analysts became more positive on global economic growth," said Bryson.
"On top of this a weak US dollar and a resurgence in the carry trade flows added to renewed interest in commodities and ensured investors kept a healthy risk appetite."
Bryson noted that local gold miners had probably been some of the worst performing stocks this year.
"One would not have thought so taking into account the new highs that spot gold made during the year, but a strong rand and growing cost pressures prevented our gold miners from reaping the full benefit of the higher bullion price.
"Also, looming electricity price increases from Eskom put another spanner in the works for our gold miners with their profit margins already under pressure," he said.
The second trader pointed out that the platinum sector, which had been directly influenced by the credit crunch as vehicle sales plummeted, had outperformed the rest of the commodities.
"As conditions improved, the sector made an enormous comeback, though still far away from 2008 highs," she said.
"Going forward, the car industry will certainly gain from easier lending conditions by banks and low interest rates."
She added that financials had performed relatively well in 2009.
"Local banks were not under that much pressure and avoided the worst of the global credit crunch.
"The sector recovered from the March lows as confidence returned to the financial sector and investors realised that South African banks remained well capitalised," she said.
Looking ahead to 2010, Bryson said: "It seems that the general consensus among market participants is that we will see continued gains in global equity markets into next year."
He noted that a lot of analysts were starting to favour developed markets over emerging as valuation in emerging markets started to look stretched.
"In the current interest rate environment it looks like equity markets will continue to offer the best return of all the asset classes and one would expect funds to continue to flow out of fixed income investments and into riskier assets," he said.
"It is very difficult to predict what the future holds for equities but it does seem that the worst of the recession appears to be over and company earnings will gradually recover," the second trader said.
She added that earnings growth would be crucial in the coming year to support the strong rise in share prices since March 2009.
"With global economies on their path to recovery and the low interest rate environment, 2010 might not be a bad year at all, but investors should not expect abnormal gains," she highlighted.
"Like almost every year, 2010 will most certainly also hold a few surprises and after the recent rally 2010 might turn out more volatile," she warned.
Asked which stocks one should look out for in the new year the trader said: "It would be interesting to see what construction stocks do especially after the hype of the 2010 World Cup.
"With the construction sector under pressure, it does seem that the shares have already priced in lower earning. Because of a few uncertainties surrounding the sector I would be cautious," she said.
"I think stocks that are the most geared towards an upturn in the business cycle will benefit next year. I think we could see our retailers attract a lot of buying interest next year especially with low interest rates and further improvements in the business environment boosting consumers pockets," said Bryson.
"I would keep an eye on stocks like Truworths, Foschini, Mr Price. We should see trading updates from these stocks early next year and this should give a clearer indication how the South African consumers are recovering from the recession," he added.
- I-Net Bridge