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Santa Claus might not be coming to Town this year for South African investors

View from the Dealing Floor

Gareth Murray works on IG’s dealing floor in South Africa. To find out more about CFD trading visit: http://www.ig.com/za/cfd-trading

The Christmas or Santa Claus rally has been highly publicized in recent years by financial market participants. If you are not familiar with this, it is the phenomenon where global equity markets tend to post price gains over the month of December, and in particular the week between Christmas and New Year.

The S&P500 and FTSE100 indices, have managed to post an average December gain of 1.4% and 1.7% respectively. Back home our Top 40 index boasts an even better gain, nearing 2.5%. Further analysis reveals that our general retailers, much like their stellar performance last year, have been a driving force behind our Christmas rally in years gone by. Eight out of the last ten years have yielded a positive move with an average gain over each of the December periods of 4%.

The retail sector in 2012 was the darling of the JSE but this certainly looks set to change in 2013 as many of these stocks have given back most, if not all of the gains made last year. If one compares the performance of the Top 40 in 2012 which grew at 19.2%, and compare this to 2013’s growth which is now standing at 8.2%, one could deduce that the poor performance of our retailers have contributed much to this decline, as well as other sectors such as resources, especially gold.

A comparison of selected monthly and year to date performances of selected retails stocks below may shed some more light on why the Christmas rally might not come this year.*

ShareDecember  2013 This year so far2012
Shoprite-9.71%-21.9%49.06%
Woolworths-3.75%1.56%78.78%
Pick n Pay Stores1.6510.68-6.00%
Massmart-9.1%-31.53%9.21%
Mr Price-1.088.56%71.60%
Foschini-4.8%-31.99%32.36%
Truworths-5.43%-30.72%41.76%

Taking the above into account, together with the usual holiday time profit taking, the spectre of the possible tapering of the Fed’s stimulus program looming, and the potentially detrimental effect this will have on emerging economies, with South Africa been particularly vulnerable due to its open economy and large current account deficit, one would have to think that Santa might not come this year and that investors could find their Christmas stockings looking rather empty.

*based on closing prices ending 13/12/2012

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