Abstract
M.Comm.
The aim of this study was to assess the effect that economic
indicators have had on the performance of the industrial
index of the Johannesburg Stock Exchange.This study was
motivated as a result of the growth in participation on the
JSE by local investors, both private individuals and through
vehicles such as unit trusts and foreigners.The results of
this participation have been twofold.Firstly, there has
been an expansion in market participants research divisions
in order to gain a windfall by predicting events ex-ante.
Secondly, the man in the street has become more aware of the
relea'se of economic data as this may forewarn a change in his
primary savings medium.
This study analysed sixteen economic variables to assess if
they had an impact on the industrial index.The variables
were grouped into three categories. 1) Inflation, interest
rates and their indicators which comprised the CPI, PPI, M3
Money Supply, Total Private Credit, the yield on the 15 year
government bond and the predominant overdraft rate on current
accounts. 2) GDP indicators, consisting of; building plans
passed, building plans complete, new vehicle sales, retail
sales, manufacturing production and 3) The Foreign sectors
namely; the Rand Dollar exchange rate, the Sterling Rand
exchange rate, the Dow Jones Industrial Average, the Standard
and Poor's 500 index and the Financial Times 100 index.
The framework used to analyse the performance of the index
was Gordons Growth Model. The model maintains that the
present value of a share is equal to the discounted expected
future value. This meant that two variables had to be forecast, a discount rate and a growth rate. The purpose of
the study was not however to look at a single share in
isolation, but rather an index comprising many shares. Thus
GDP indicators were taken as macro proxy for growth. Both
long and short term interest rates were considered as a
discount rate. In an attempt to make expectations about
these variables endogenous indicators that may forewarn a
change in interest rates were also included. The
liberalisation taking place on South Africa's financial
markets, and the integration into the world fold due to
globalisation demanded that a more parochial view be adopted.
Hence the analysis was expanded to include the foreign
sector. This involved making use of the exchange rate as
well as overseas indexes.