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Durban - What are share prices on the JSE likely to do in the first few months after next week's election?
History suggests there's a good chance the market will go up. But as always, there are possible complicating factors.
Daniël Kriel*, CEO of Sanlam Private Investments, has looked at the numbers and found the trend of a rising market following an election was only broken once since the first democratic poll in 1994.
That was the last election in April 2004, when the all-share index lost 8.7% in the first three months after the election.
Specific grounds are difficult to pin down because they combine short-term investor sentiment and market fundamentals. But a possible reason is that 2004 was the first time the ruling ANC gained a two-thirds majority, after capturing 69.7% of the vote.
In 1994 the market was up 5.6% three months after the "Nelson Mandela election", and in 1999 it climbed 4.3% three months after the election.
Kriel believes that while elections do have a short-term effect on the market mainly due to both local and foreign sentiment, it doesn't take long for market fundamentals to come back to the fore.
For instance, despite the initial dip after the 2004 election, 12 months later the market was up 18.8%.
What's likely to happen this time around? Kriel says it depends on soft and hard issues.
The former are whether the ANC keeps its two-thirds majority (negative), and if new President Jacob Zuma is perceived as making sensible selections for cabinet positions (positive) rather than awarding posts to pals that supported him (negative).
On the hard issues, Kriel says an expected aggressive easing of interest rates will help the market, as will the relatively good health of many JSE-listed companies' balance sheets compared to the debt turmoil around the world.
"If the above four factors fall into place, we could be pleasantly surprised with the performance of the market after the election," he says.
His one concern is that upcoming reported earnings growth of companies may disappoint. He therefore believes it's not a time to follow the index, and that skilful stock election will be key.
* For the full interview, read Private Buy in next week's edition of Finweek.
- Fin24.com