OVER the past five years, equity markets have become a big daily news story. A story that most probably emanated from New York often led to risk wariness, which usually translated into a fall in the JSE, or optimism over risk assets, which triggered a rally in stock and commodity markets.

In the closing weeks of last year and the start of this year, optimism over the state of the global economic recovery and the successful handling of the European sovereign debt crisis has helped push the JSE all-share index past the 40,000 mark. I’ve written many an intro leading with the optimism or the pessimism of market participants over these two very important factors, that have either caused a rally in the local bourse, or a sell-off.

It seems — for now anyway — that there are some legs to the current positivity with which the market sees the state of the global economy and Europe’s debt issues this year. (The US fiscal talks between Democrats and Republicans next month will certainly test this.)

But the longer the positive sentiment remains and the more people nestle into the belief that all is fine, the more such things as earnings estimates and domestic factors start to matter.

For once, there’ll be more unique reasons for a fall in the all-share index. We’ve already seen it play out in exchange markets, where the rand’s plunge against the dollar is much more a domestic concern than just a play on emerging markets.

The correlation between some of the world’s leading bourses may take a back seat. They are more responsive to speculation about earnings and mergers.

A measure of how much the 2,073 companies in the FTSE all-world developed index swing in unison is that it has dropped 31% since June, its biggest retreat since at least 1993, according to data from Société Générale and Bloomberg.

The S&P 500, an index of 500 stocks representing all the major industries in the US, is closing in on a record high. Pushing the index, which includes companies such as Starbucks higher, is better than expected earnings.

What this says is that the good stock pickers or those who are great at matching an event to a particular company are going to be more visible this year than the investor who follows the index.


AFTER earnings guidances that disappointed in the main, South African retailers have succumbed to the wariness that local analysts have had for some time about the counters and their valuation.

Disappointment with earnings guidance has seen shares in Africa’s biggest grocer, Shoprite, fall more than 12%, along with fashion and home-ware retailer Foschini this month. Even Woolworths, whose statement wasn’t as negatively viewed, has seen its shares lose more than a tenth of their value.

Foreign investors — so long the biggest cheerleaders of the South African retail story — are now betting on a European recovery and in turn their long-suffering giants such as Tesco and Carrefour.

Retailers in Europe and across the Atlantic have been stuck in a rut with no meaningful sales growth over the past couple of years as a result of the crisis.

In search of better returns, foreigners bought emerging-market retailers, which despite the economic slowdown reported sales growth in the mid- to high teens. Their interest pushed up valuations to historic highs, causing concern among fund managers. But as long as foreigners were interested, the sector remained well supported.

But earnings expectations are unlikely to be met this year, as disposable incomes in South Africa become even more constrained.

Unemployment is set to widen even further as mining houses look to reduce their operating spend because of low commodity prices and rising costs. The weaker economic variables in our case have led foreigners to search for opportunity at home. European giants such as Tesco, UK’s largest grocer, have had a much better start to the year than local retailers.

Minus the "horse meat" saga, Tesco has gained more than 6% this year. (Horse DNA was discovered in some of the grocer’s beef products, which prompted a barrage of negative publicity.)

While still struggling to woo back shoppers by holding down food prices, Carrefour, France’s biggest retailer, has seen its stock gain more than 10% this year.

A return in confidence in Europe — short-lived or not — will make foreign and local investors much more circumspect about retailers. Earnings growth and expansion potential will be key factors in the year to come.