SA households R200bn poorer as drop in share prices bites

The net wealth of South African households declined by an estimated R205bn during the first quarter of 2018, compared to the last quarter of 2017, according to the latest Momentum/Unisa Household Wealth Index report. 

The report estimated that household wealth amounted to R7 087.3bn at the end of the first quarter of 2018, R205bn lower than the adjusted figure for the fourth quarter of 2017.

The report’s authors said the drop was principally due to a fall in the value of financial assets. 

These assets include households’ savings in retirement funds and annuities, which are mostly invested in shares of companies listed on the JSE, as well as in bonds and fixed deposits. 

This, in turn, was caused by a decrease in listed share prices. 

"For instance, the JSE All Share index decreased from 59 504 points at the end of Q4 2017 to 55 475 points at the end of Q1 2018," the authors said. "In real terms, this represents an annualised decline of 28.0% between Q4 2017 and Q1 2018."

"The real value of bank deposits was also worth 0.6% less compared to Q4 2017."

While the All Bond index increased at an annualised rate of 28.4%, the report’s authors said that most of households’ savings are invested in listed shares and deposits.

"This caused the sharp decline in the real value of households' assets in Q1 2018."

Why did the share price fall?

The authors noted a number of reasons behind the decrease in the All Share index, which had reached an all-time high in late January 2018. 

These include fears of overheating share markets worldwide, and money leaving South Africa with the expectation of higher interest rates in the United States. "Domestically, an increase in the VAT rate and uncertainty about the impact of land expropriation without compensation contributed to a further decline in share prices."

The authors said a decrease in net wealth was bad news for households. 

"Less net wealth is bad news for households, as it indicates that their estimated monthly income will be insufficient to fund their standard of living in retirement, while it also means that they will have less funds available to protect themselves against emergency expenses," the authors argued.

"Under these circumstances they normally revert to additional borrowing, which increases their liabilities and thus reduces their net wealth."

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