While the South African JSE (Johannesburg Stock
Exchange) hit a record high in recent market action, there
could be greater gains ahead for South Africa stock after
November's American presidential election.
[caption id="attachment_69882" align="alignright" width="300"
caption="Johannesburg, city of gold and the booming JSE South
African stock exchange"]
[/caption]
Most South Africa stock, such as Sasol Ltd (
SSL
,
quote
),
a major oil company
, and Gold Fields Ltd (
GFI
,
quote
), a mining company, are natural resource based. Another round of
quantitative easing by the United States should send the South
Africa stock exchange even higher.
The
African continent is now at the vanguard of
emerging market growth
. The African Development Bank projects that growth will be 4.5%
for the continent in 2012 and 4.8% for 2013. China, now its largest
trading partner, has been particularly active in investing across
the continent. While Africa is now the new focus of investment, the
JSE was orignally founded in 1887.
Like much of the South African economy, the creation and
development of the JSE was directly related to the gold industry.
It is currently one of the top twenty stock exchanges in the world,
with a major contributing factor the healthy level of South
African corporate governance. The JSE's affiliation with the
London Stock Exchange is testament to that. Like the London bourse,
the JSE offers a full range of financial products, ranging from
equities to options to derivatives to currency futures.
Growth in South Africa has been falling
, in part due to China's declining gross domestic product.
This could pull the JSE down due to profit taking, particularly
with the bourse at a new high. But if the U.S. Federal Reserve
initiates more quantitative easing measures after the election, as
it did in 2010, the price of gold and oil will skyrocket as the
value of the American dollar falls.
The declining value of the U.S. dollar, coupled with the rising
value of gold and oil will be very bullish for the JSE. Now trading
around $43, Sasol was over $60 during the second round of
quantitative easing. Over the same period Gold Fields was around
$18 a share. Now it is about $13.
In addition, investors will turn more to emerging markets.
Africa is expected to grow more than three times the 1.5% GDP
growth rate just posted by the United States. While growth in
South Africa may be down due to declining Chinese demand, U.S.
economic stimulus measures could have South Africa stock soaring
again.
