The excellent performance of the S&P 500 in 2014 has been well matched by the Global Consumer Plays listed on the JSE
One of the features of the stock markets in 2014 was the outperformance of the New York-based S&P 500 against almost all other markets. This included the JSE and other emerging markets, with which the JSE kept close company as always.
As the chart below shows, the superior returns provided by the S&P 500 over the year were almost all earned after September. In October the S&P marched higher while the JSE (and the average emerging equity market), having kept up to a degree with the S&P 500 until then, fell back absolutely and relatively. By year end the S&P 500 had gained about 16% against the JSE. The JSE in 2014 delivered a negative total return (including dividends) in US dollar terms of approximately -2.5% while the S&P returned approximately 13.7%. Converted to rands, the JSE returned 10.7% and the S&P about 25.7% in 2014.
Not all sectors of the JSE lagged behind the S&P 500. The group of 10 JSE listed companies we describe as Global Consumer Plays (because their earnings and valuations are largely independent of the SA economy, including the direction of SA interest rates), have again fully matched the performance of the S&P 500 in 2014, as we show below.
Clearly this group of JSE listed companies provides South African investors with easy exposure to the global economy and diversification against the SA economy. We have shown before that the reason for the high correlation of returns from the Global Consumer Plays and the S&P is not coincidental but can be attributed to a highly comparable level of earnings when measured in a common currency. The earnings performance of the JSE-listed Global Consumer Plays is particularly impressive through the Global Financial Crisis, as may be seen in the chart below. It seems reasonable to predict that the earnings of Global Consumer Plays will continue to perform well in line with those of the S&P 500. It must be said though that with only 10 companies making up the index and also given the large weight accorded to Naspers (NPN) in the index the much less diversified and therefore more risky character of the Global Consumer Plays ,when compared to the S&P 500 needs to be recognised. The largest stock included in the S&P 500, Apple, accounts for less than 4% of this Index.
We have calculated a market cap weighted Index of these companies, the Global Consumer Play Index using their weights as in the SWIX Index calculated by the JSE, which accords index weights according to the proportion of shares issued by these companies held on the JSE register. This makes Naspers, with a weight of over 10% in the SWIX, the largest contributor to our Global Consumer Play Index with a weight of about 30%. The companies we include in the Index account for about 40% of the value of the JSE All Share Index. Other shares in this index are: Aspen, British American Tobacco, Richemont, Mediclinic, MTN, SABMiller, Steinhoff, Netcare and Intu.
We aggregate other components of the largest companies listed on the JSE as indices. These include the Commodity Price Plays, which have been distinct underperformers while the SA economy dependent industrial companies, which we combine in a further index, have performed somewhat better. Clearly the distinct outperformers on the JSE have been the Global Consumer Plays.
It seems reasonable to suggest that optimism or pessimism about the prospects for the S&P 500 should translate into similar prospects for the Global Consumer Plays on the JSE – whether valued in US dollars or in rands.