Can The Jse Head Upwards Forever? (spoiler – It Can’t) | Biznews.com

It bounced back in 2010, but has gradually slowed since then, falling from over 3% a year in 2010/11 to its current level of around 2% a year. In other words, although share prices have been growing apace, GDP growth is slowing. This is one indicator that the JSEs growth trend may not be entirely sustainable. Second, lets look at inflation and interest rates. The nature of the relationship between stock prices and inflation is a matter of debate. Some evidence suggests that returns are lower in periods of high inflation, possibly because higher input costs put pressure on corporate margins, and struggling consumers are slower to buy. Other evidence suggests that stock prices are not impacted by inflation, as companies are able to respond to rising prices by raising their prices. Nevertheless, inflation is a good indicator of what is going to be happening to interest rates, and there is good evidence that stocks perform better when rates are low, and worse when they are high (probably because when interest rates are high, people put their money into fixed income assets that are delivering good returns at lower risk, and because corporate interest payments increase in periods of high interest rates, putting pressure on margins). As you can see from the chart below, inflation fell throughout 2009 and 2010, as did interest rates. This doubtless gave some impetus to stock prices. However, inflation began to rise in late 2010, and has been close to breaching the 6% ceiling set by the Reserve Bank since then.
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