Schalk Louw | Santa Claus may be coming to the JSE

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Schalk Louw is a portfolio manager at PSG Wealth.
Schalk Louw is a portfolio manager at PSG Wealth.

People are always looking for reasons why the market is moving up or down, but they often overlook the most significant culprit: the holiday spirit, writes Schalk Louw.

With the festive season upon us, you'll be greeted by colourful flashing lights and Christmas decorations wherever you go. And, of course, no festive season will be complete without cheerful Christmas songs, especially one of my favourites: Santa Claus is Coming to Town.

I particularly love the lyrics: "You better watch out, you better not cry, better not pout, I'm telling you why, Santa Claus is comin' to town." The rest of the lyrics serve as a fair warning that if you have been naughty or unprepared for Santa's arrival, you won't be getting any gifts this Christmas.

And among the festivity in a shopping mall, it struck me that these lyrics also apply to the JSE.

People are always looking for reasons why the market is moving up or down, and they often overlook the most significant culprit: the holiday spirit.

Percentage growth in December months since 1962. Source: PSG Old Oak and Iress

When we look at the JSE All Share Index, only 17 (28%) out of the last 60 Decembers were negative months. Up to 31 October 2022, the FTSE/JSE All Share Index had grown by 11.7% per year since 31 December 1962 (excluding dividends), with more than a quarter of this growth (28%) achieved during Decembers alone. 

Just as with ordinary historical data, figures produced during Christmas months by no means guarantee future performance, and I'm fully aware of the fact that our current investment environment will pose its fair share of difficulties in order for our local stock market to end on a positive note this year.

Political uncertainty in South Africa, the Russia-Ukraine war and possible recessions are only a few of the challenges investors have to face.

But I also know that Santa Claus' sleigh is rapidly rushing towards us, and although the FTSE/JSE All Share Index was only just in positive territory for the year (as of last week), I won't risk standing in its way by guessing that the market will close on a negative note this December. 

As positive as historical December data may seem over the last 60 years, things become quite interesting when you view these months in isolation over this period. Even though Decembers were positive 72% of the time, the month doesn't seem to be one of the best performers over a rolling 12-month period (i.e., from one December to the next).

If you'd bought shares in April every year, your rolling 12-month returns would have been the best. And it just so happens that May, the month during which most stockbrokers are instructed to sell, produced the third-best rolling 12-month returns.

From a statistical point of view, however, Decembers do appear to be positive months, and I wouldn't be in too much of a rush to take a profit after the recent recovery in the market. However, the fact remains that we still find ourselves in a very risky investment environment, and these risks cannot be ignored. 

Percentage growth in December months since 1962. Source: PSG Old Oak and Iress

Looking at current valuations, it might be prudent to look through this risky environment and adjust your objective towards the longer term. The market's current price-earnings ratio (P/E) of 10.8 times is still relatively "cheap" compared to the 25-year average of 15.6 times.

Despite all the risks, I do see more and more value emerging in our local market. I believe that a turnaround can occur at any moment, but "you better watch out", because there will be no "jingle bells" ringing to announce its arrival.

Schalk Louw is a portfolio manager and strategist at PSG Wealth Old Oak. News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24. News24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, News24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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