John Jackson, financial analyst, says historically, the stock market tends to do well in election years. - File

Ashford W. Meikle, Business Reporter

Notwithstanding pending national polls, constitutionally due by October this year, economist and publisher John Jackson says based on his reading of historical data over 35 years, the stock market is poised for a rebound this year, reversing the declines of 2006.

Jackson said the elections may cause concern among some investors, though he noted that "data show that general elections in the main are not bad for the market."

Elaborating on data which he presented at the Investment '07 seminar last week, he said that an "election year increases money supply. An increase in money supply means increased liquidity [and] increased liquidity usually means more money going after stocks."

In 1980, for example, the JSE Composite index went up by 24 per cent, a trend which continued in 1989, when it went up by 44 per cent.

Market gains

In 1997, the market gained 19 per cent and in 2002 it went up by 41 per cent. But, there were exceptions which interrupted the trend: 1972 when the Index lost four per cent, 1976 when it fell by 22 per cent and 1993 when the JSE index lost almost half its value - 49 per cent.

But, as pointed out by Jackson, there was an interesting phenomenon; with the exception of 1973, every single post-election year has shown an uptick in the JSE Index.

Data captured over the past 25 years indicate that in 1981, for example, the market recorded a strong 131 per cent increase. A similar trend occurred in 1990 when the JSE Index gained 22 per cent; in 1994 market returned a 28 per cent increase. But, while the market did gain in 1998, the increase was marginal - a little under four per cent and in 2003 double digit gains were recorded with 21 per cent upward movement in the Index.

Looking at the JSE's performance last year, Jackson argued that the market mirrored the development of the wider economy, in other words, the macroeconomic factors which impact investor confidence and psychology.

For example, there was an uncertainty as to whether the Government would be able to keep interest rates stable as well as the likely impact on the foreign exchange market. And, with investors unable to answer these questions and institutional investors staying out of the market, the JSE was essentially depressed for most of last year, when it lost four per cent last year, the second straight year of decline following on the nine per cent slide in 2005.

Negative growth

"The first half of the year essentially represents negative growth in the [three indices] - as the market overreacted to the situation and people dumped stocks at prices that were ridiculous. In fact, if you look at what happened behind the scene, particularly in the latter part of the year, there were 12 or 13 stocks that had no supply at all," noted Jackson.

He said that the quarterly results of listed companies from "now to March will determine the next market move", adding that early profits would signal wide-based increases to which investors would respond positively.

Jackson said that even without the election factor, 2007 would be a good year for stocks as interest rates seem poised to fall and corporate profits are expected to be robust.

He cautioned however that those positives could still be derailed by crime, the elections, as well as the uncertainty of oil prices.

ashford.meikle@gleanerjm.com