You may have noticed that stock markets have been outperforming again of late, in many cases setting new record highs, and apparently not very shy of wanting higher, despite all the interest rate (Fed), country (China) and geopolitical risks (Russia) regularly trotted out?

Reading this right is always difficult. Out of some 250 trading days in a year, most of any upside achieved during that year tends to be concentrated in at most 5 trading days.

The trick is to know which 5 out of 250, often randomly distributed.

In the daily struggle for existence, however, we have a way of losing track of the origins of this global bull market and its evolution since, which nearly universally was in late 2008 or early 2009, at the depth of a major financial crisis and resulting recession, when even many a billionaire saw everything nearly going up in smoke, never to be recovered.

Happily, this tale had a different ending.

Last nite the S&P500, the broad based US stock index, closed at 1890, a new record high, and 179% up from its early 2009 recession low of 677.

That's impressive, and leaves little old us way behind, not so?

Not really, for it materializes that the JSE All Share also closed at a record high of 48405 last nite, and it was 171% up on its late 2008 low of 17814.

But it still makes the American performance outrank us?

Not quite. For the Americans lost their nerve far more impressively than we did during those distant, dark, fearful crisis times, collapsing 57% peak to trough between October 2007 and March 2009 while we fell "only" 46% during the same loss of nerve (admittedly doing it much more impressively in 1/3 the time the Americans needed, between May 2008 and November 2008, a much more intense, fearful bungee jump, to be frank).

So the Americans started their equity boom market off a far worse depressed base than we did. We were also frightened but simply not as witless, despite what some billionaires may have been thinking at the time.

If you start off a more severely depressed base, the subsequent bounce can look more impressive but doesn't represent performance, merely that you recovered nerve to a greater degree after first losing it.
When you rebase the pre-crisis peaks in both countries to 100, it materializes the S&P500 peaked at 100 in late 2007, went down to 43 by early 2009, and has since recovered to 120 last nite.
Bully for them. New record all time high by 20%.

In the case of the JSE All Share, it started at its 100 peak in early 2008, fell to 54 by late 2008, and last nite closed up at 146, outperforming the Americans by a mile.

Much more bully for us, not so?

No way, will say the knowledgeable among us. You must take the currency into account. That will show the superiority of the American performance.

Not quite. When the JSE hit bottom in November 2008, the Rand traded at 10.61:$ and when the S&P500 hit bottom in early 2009 the Rand traded at 10.60:$.

Guess where the Rand was trading last nite? Can you imagine 10.61:$?
So the whole run was precisely currency neutral.

Not of course if you were trading in and out during the entire period, busily switching horses, trying to maximize trading advantages and minimize trading disadvantages, but that is not what this is about.
So in desperation, then, did we perhaps have a higher inflation rate than the Americans over the intervening years, giving us difference in purchasing power for the stock market gains made over this period?

Yes, very true. Between late 2008 and early 2014, accumulated American CPI inflation was 10.8% and South Africa's was 30.3%, for a difference of 19.5% in the American favour.

If we adjust the JSE boom gain of 92 index points during 2009 to date (146-54) for this 19.5% inflation differential, we get an adjusted index gain of 77 and a reading last nite of 131.

This JSE reading last nite is still 11 points bigger than the rebased 120 reading of the S&P500 index when allowing for currency and inflation differential.

So the JSE won not by a nose length but a couple of horse lengths, pipping the S&P500 over a five year stretch, appropriately handicapped. Not bad, for one of the infamous five EM Fragiles.

What does that make America?
 
Acknowledgement
Nicolaas Van der Wath, BER economist, Stellenbosch for underlying data
Cees Bruggemans
Consulting Economist
Bruggemans & Associates
 
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