A quantitative analysis of economic indicators on the performance of the Johannesburg Stock Exchange Industrial Index

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