THE question emerging from the US Federal Reserve’s move into uncharted waters through its decision to tie the interest rate outlook to the country’s unemployment and inflation rates is, just how much further can equity markets rally in the years to come?

Fed chairman Ben Bernanke has provided that underlying support for the all share to keep on breaking record highs in the weeks to come with his promise to keep rates near zero until the jobless rate in the US falls below 6.5%.

With only one dissenting voice in the federal open market committee, the bank also said it would keep rates low provided inflation expectations did not exceed 2.5%.

The jobless target is an average unemployment rate for the world’s biggest economy over the past 50 years. Because of improvements in work efficiency, rising usage of machinery, it’s a target that may take much longer to reach than in years gone by.

Which means, even cheaper money for a very long time? For that money to outpace and grow it’s going to need a home and the only place where it’s likely to grow is higher yielding emerging markets.

This year, foreign investors have virtually doubled their investment in South African bonds from the previous year. Data from the Johannesburg Stock Exchange shows that they’ve bought more than R90bn of our bonds, compared to about R47bn last year.

Without this inflow, I am afraid the rand would have plummeted significantly more than the close to 7% depreciation against the US dollar this year. Instead of examining whether there’s room for more rate cuts as we have this year, thoughts would have been of a possible hike in rates.

The all share, which could pass the 40,000 mark, has also been a beneficiary of this interest, especially in retailers and stocks such as SABMiller and Richemont.

Despite the gloomy headlines on the domestic economy, the extra liquidity has supported asset prices. The Fed statement ensures this liquidity remains next year and the year after. Even beyond 2015.

What does it mean for the all share?

Since the 2008 credit crunch that caused the Fed to slash rates to post-Second World War lows in order to help fund the recovery, investors pulled out of growth sensitive stocks such as resources and piled into local retailers because of their Africa growth story.

Both Mr Price and Woolworths have gained more than 300% in the past three years, and Impala Platinum’s shares have dropped close to a fifth in value over the same period. Will the trend continue?

A couple of weeks ago, I argued that retailers had run their race and I still think so.

Slow growth, rising unemployment in the country worsened by wildcat strikes in the mining sector are going to take effect not only on retailers but on unsecured lending, putting pressure on earnings.

If I am right, where will investors look next for opportunity? Maybe resource shares will make sense again?

For that to happen, China is key. This weekend, the Communist Party will set official growth targets for next year, with a decision made on the country’s economic management strategy.

The Chinese economy seems to have bottomed and inflation levels — the main reason its government felt a need to cool its double-digit growth rates by hiking rates — have eased. The world’s second-biggest economy could up its appetite for commodities.


THE JSE’s monopoly may be put to the test next year as a Cape Town-based company with licences to operate stock markets in Namibia and Seychelles look to enter the market in SA.

There have been numerous complaints by brokers and financial institutions about the high costs associated with just having one bourse, especially after the JSE bought the Bond Exchange of SA.

According to Bloomberg, Quote Africa Group expects its application to start a bourse will be considered next year. Whether there’s room for another exchange only time will tell, but many investment professionals will be hoping they find their place in the sun.

The company told the agency it has the backing of institutions, banks and brokers holding client assets of about R3.5-trillion. The all share has a market value of R7.36-trillion.


THIS is my last column for the year; it should return in the final week of January. Here’s wishing you and your family happy holidays.

Speak to you soon.