Investing in South Africa and the JSE
The JSE is a commodity and currency market wearing an equity market's clothes.
Understand what actually drives a JSE-listed share, which is rarely the company.
How Investing in South Africa and the JSE works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The market moves first, and recovers first
Shares fall before the data does and start climbing while the news is still uniformly awful. Waiting for the news to improve means buying after the recovery has happened.
- 1
The index is not the economy
A large share of the JSE's value sits in miners, and in companies like Naspers whose worth is mostly a stake in a Chinese business. The index can therefore rise on a good day in Beijing or a strong platinum price while the South African economy is going nowhere at all.
- 2
The rand is half your return
Many of the largest listings earn in dollars and report in rand. A weakening rand flatters their reported earnings and can lift the share price even as the country gets poorer. If you are a rand investor this partly protects you. If you are not, you are taking a currency position whether you meant to or not.
A JSE share up 20% in rand can be flat in dollars. Always ask which currency the number is in.
- 3
The commodity cycle sets the mood
Mining earnings are violently cyclical, which means their P/E ratios lie in the usual cyclical way: lowest at the top of the cycle, when profits are at a peak that cannot last, and highest at the bottom, when they are about to recover.
- 4
Load-shedding and logistics are real line items
Electricity supply and rail capacity are not background colour in South Africa, they are direct constraints on volumes. A miner can have the ore, the price and the demand, and still not get the product to a port.
You can explain why the JSE rose on a day the South African economy shrank.
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