Why the JSE is up when all else is down

South Africa is now in a technical recession and the ratings agencies warn of possible further credit downgrades. Tax receipts have fallen; car sales are poor; retailers are bleeding and some are closing stores; and consumers are on their knees. All this in just the past few months.

While government seems to be steering us into very dangerous waters, the rest of the world, especially our fellow emerging markets, are starting to do well. Over the past 20 years, South African business people have not been sitting idly waiting to see what happens. They have instead embraced globalisation and become international players. Some have gone to developed markets with mixed fortunes. Others have gone to developing emerging markets, and many have taken up opportunities elsewhere in Africa.

These moves have slowly changed the make-up of the Johannesburg Stock Exchange (JSE) to the extent that as much as 67% of JSE All Share Index top 40 companies today derive their earnings from outside South Africa.

A few examples. Naspers earns much of its income from a Chinese internet company. Anglo American and Billiton benefit from international commodity investments. Sasol has entered international oil markets. Remgro and Richemont are traders in international goods. Sanlam and Standard Bank have operations elsewhere in Africa. In addition to African interests, MTN has operations in Iran, and Old Mutual in India, Mexico, the United Kingdom and the US.

The JSE used to be a play on commodities but its make-up has changed fundamentally. The weakened Rand and commodity prices has further changed its profile.

As a result, the JSE is no longer a proxy for the South African economy. It is now an emerging market play for international investors. Our politicians will probably wreak a lot of damage in the long run, but if you want to know why the JSE is at an all-time high, the key reason is that international investment managers remain positive about emerging markets, of which we are still one.