Is the SA economy on the mend?

Whether our economy is on the mend or not, will depend largely on which indicators are used to make this judgement call. The equities markets are often a good barometer of what is happening in the broader economy largely because the trades and the prices of the shares being traded are a reflection of what is taking place that point in time. The equities market tends to react immediately to any changes in the overall economic conditions or any news that may point towards any changes in the economic conditions. With this in mind, I have chosen the performance of some elements of the JSE Securities Exchange as indicator that to measure the direction our economy will take in 2010. the mend?”

The JSE Securities Exchange at a glance

For the full 2008 calendar year, foreigners were net seller of equities on the JSE to the tune of R54,2 Bill. This fight of capital from the JSE is a clear sign that investors were jittery about equities in 2008. In 2009 calendar year however, foreigners were net purchasers of JSE equities by foreigners of JSE equities, with net purchases of R75,4 Bill, which seem to confirm the general belief that 2009 was indeed a year of recovery compared to the disaster that was 2008. An even more compelling evidence of a recovery in 2009 is the fact that the JSE All Share Index (an index of combined shares listed on the JSE) closed the year an amazing 28.6% higher than it closed in 2008. This recovery, as can be expected, was led largely by the resources sector. Despite the fact that 2009 saw only 10 new company listings on the JSE compared to 63 in 2008, the market capitalization of the JSE Securities Exchange at the end of 2009 (R5.9 Trill) improved by 30% from its 2008 closing level of R4.5 Trill.

Barring any unforeseen disasters in 2010, it is my opinion that the South African economy in general will show a strong and continued recovery. Of course the best barometer of true economic recovery will be the  GDP figure for 2010, which hopefully be better than the 0.9% experienced in 2009. The South African economy is indeed on the mend and this mend should continue into 2010.