South Africa stock market at new high


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"] Image courtesy Aldon Scott Mc Leod: [/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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , International , Stocks

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