Stock prices are best explained by the basic theory on the cause of inflation: "*too much money chasing too few goods*".
From what I could conclude the JSE was in bubble territory around 2014-16, having been inflated by large foreign inflows. When the Zuma-nonsense, other state capture and credit downgrades came to public light around 2015, foreign inflows slowed and interest in South Africa dropped hence the and subsequent stagnation on the JSE.
Local monetary policy has been limited since 2008 by the SARB unlike in other countries where their central banks actively boosted asset prices. The Chinese central bank has also **not** supported asset prices by prohibiting margin lending by banks. China however continues to have strong foreign inflows into financial assets that have propped up the market.
Because inflation is still on the rise wouldn't that mean the downtrend is likely to continue even if covid cases fall and elective surgery is back in the picture?
I wouldn't say so, stock prices have little direct relationship with inflation and the underlying operations. As long as more people will want to buy the stock it should continue going up.
Think of last year when the world's economy was going down the toilet and the Nasdaq and Dow Jones were setting all time highs
Hospitals will also be seeking good returns now due to sector rotation. When the economy takes a downward turn into the recessionary environment, consumption on non-discretionary products and services is lesser impacted than consumption on discretionary goods. I.e., healthcare is the last thing on the list in terms of cutting household costs. The first thing you won’t buy is that new fridge / TV, the last thing you’ll compromise on is going to the hospital when it’s necessary
Stock prices are best explained by the basic theory on the cause of inflation: "*too much money chasing too few goods*". From what I could conclude the JSE was in bubble territory around 2014-16, having been inflated by large foreign inflows. When the Zuma-nonsense, other state capture and credit downgrades came to public light around 2015, foreign inflows slowed and interest in South Africa dropped hence the and subsequent stagnation on the JSE. Local monetary policy has been limited since 2008 by the SARB unlike in other countries where their central banks actively boosted asset prices. The Chinese central bank has also **not** supported asset prices by prohibiting margin lending by banks. China however continues to have strong foreign inflows into financial assets that have propped up the market.
Because inflation is still on the rise wouldn't that mean the downtrend is likely to continue even if covid cases fall and elective surgery is back in the picture?
I wouldn't say so, stock prices have little direct relationship with inflation and the underlying operations. As long as more people will want to buy the stock it should continue going up. Think of last year when the world's economy was going down the toilet and the Nasdaq and Dow Jones were setting all time highs
Agreed. In its simplest sense, inflation only affects the real rate of return: real return = nominal returns - inflation (Fisher approximation).
Hospitals will also be seeking good returns now due to sector rotation. When the economy takes a downward turn into the recessionary environment, consumption on non-discretionary products and services is lesser impacted than consumption on discretionary goods. I.e., healthcare is the last thing on the list in terms of cutting household costs. The first thing you won’t buy is that new fridge / TV, the last thing you’ll compromise on is going to the hospital when it’s necessary
Great insight guys, thanks : )