What history tells us about the current state of the JSE

After the weak returns on the JSE over the past five years, it’s difficult to remember where the market was back in 2014. At that point, South African equities had delivered 19.9% per year for the five years following the 2008 financial crisis.

At the time, however, there were those who argued that this time was different – that markets could keep going up because there was so much cheap money in the system. There was no end to their optimism. As the graph below shows, the 2014 peak was the sixth time since 1924 that the FTSE/JSE All Share Index moved one standard deviation above its long-term trend in terms of real returns. Those upward market moves are never sustained for long.The lack of growth in the market since then has also only brought the JSE back to its long-term average. We are therefore very far from anything exceptional.

At that point, if recent market performance and the state of the country were anyone’s criteria for investing, the JSE would not have been an unappealing choice. Yet, for the 40 years since, local equities have delivered an annualised return of 17.9%.“Too often as investors we are reactive, and often those reactions are exactly the wrong action to take,” says Tucker. “We need to step back, assess the situation and look forward.

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