Events that moved our markets

May you live in interesting times” is an English expression purported to be a translation of a traditional Chinese curse. Despite being so common in English as to be known as “the Chinese curse“, the saying is apocryphal, and no actual Chinese source has ever been produced. So let’s not blame the Chinese for the current turmoil being experienced in South African and World markets and politics. We certainly do live in concerning times and a common question asked of us as Financial Advisors is how these external forces have impacted upon investments and what the likely impact will be into the future. Whilst we cannot answer with absolute certainty, what we do know is that history can give us strong guidance in terms of how markets react to extreme events and equally how they tend to recover after such events.

 

The 3 graphs below illustrate the performance of the JSE All share Index over the period from 31 January 1960 to  31 December 2015, a period 1 month short of 55 years. In this time the market index rose (and fell temporarily) from 80 points to 50093 points. This is an increase of 62616% over the 55 year period (12.42% per annum compounded). During this 55 year period, South Africa and the World experienced some earth shattering (and often unforeseen)  events which temporarily shaped the market’s performance but interestingly, the market always seemed to recover fairly quickly and surpass the high from which it had fallen. Whilst the events are illustrated in the 3 graphs, I thought it would be interesting to extract a few of the events and the duration of their impact on the market.

  • 1960 to 1962 saw the Sharpeville Massacre, South Africa’s withdrawal from the Commonwealth and the Cuban Missile crisis. The market dropped precipitously but had recovered within 18 odd months
  • 1969 to 1973 saw the Global Stock Market crash, the UN denouncing SA’s apartheid laws and the Global Oil price spike. The market took over 4 years to recover .
  • 1980  saw the advent of US stagflation and price uncertainty. The market took 18 months to recover.
  • 1987  saw “Black Monday” and the market  recovery within 18 months.
  • 2008  saw the Global Financial Crisis triggered by the collapse of Lehmann Brothers. The market had recovered by 2011.
  • December 2015 saw the removal of Nene, appointment of Van Rooyen and then the re-appointment of Gordhan as South Africa’s Finance Minister over a 5 day period. We are probably still in the market reaction period so can’t say what the long term effect and recovery period will be.

marg1 marg2 marg3

The key point is that we do live in interesting times and seemingly regardless of what South Africa and the World “throws” at it, the JSE is hugely resilient and spends much more time advancing than it does retreating. The reason is undoubtedly that fact that we live in a largely capitalist social democratic society where market participants are allowed the freedom to strategically align and re-align both in anticipation of and reaction to major events. A major component of our client’s life savings is invested directly or indirectly in the JSE but importantly, our investment managers utilise both share selection and diversification to other asset classes to mitigate portfolio risks. Accordingly, whilst we can do little (if anything) to prevent future events which will have market impact, we can and do employ judicious investment portfolio processes in the management of our client portfolios and these strategies have always been successful in minimising losses relative to the market but also taking advantage of market advances during periods of normality and recovery.

 

The message is to resist the temptation to sell out of growth investments in reaction to market events as it hampers the wealth creation process.

 

Author: Jeremy Squier

Graphs: Glacier