The report for the fourth quarter 2013 says the JSE’s growth may have boosted households’ net wealth, but the growth is not a true reflection of company earnings that are in decline.
“This points to overvalued share prices and may be a risk for households who rely on price growth in shares for increasing their asset values,” the index states.
In real terms (2005 prices), household net wealth (assets minus liabilities) is estimated to have increased to R4.5 trillion at the end of 2013, a 5.7% increase from a year before.
On a per-household basis, real net wealth was 2% higher at R281 427, but below the long-term average of 3.1%.
The index finds the increase in household asset value is driven by financial assets, which were 11.6% higher in Q4 2013 compared to a year before.
The index estimates the value of financial assets at R6.3 trillion (at December 2013) in nominal terms, accounting for 74% of total household assets.
Contributions to retirement funds and long-term insurers largely account for this, increasing 11.8% over the year to R3.4 trillion and comprising 39% of total household assets.
The index contends that the bulk of investor returns from retirement funds and long-term insurers stemmed from the JSE ALSI, which rose 17.9% (excluding dividends) in 2013.
This was driven by price increases, rather than higher earnings, raising the price-earnings (P/E) multiple to 18.6 at the end of 2013, compared to 14.8 at the end of 2012.
Benefits paid by retirement funds and long-term insurers amounted to R483bn in 2013, a 20.67% increase from 2012. “Cause for concern, however, is that the bulk of the pay-outs stemmed from surrenders of long-term insurer products, suggesting that households are under increasing financial pressure,” the index notes.
Sharp increases in policy surrenders meant that surrender payouts equaled all other payouts made by long-term insurers in 2013, such as those regarding retirement and death.
In real terms, overall household assets increased 5.5% over the year to R5.5 trillion.
The driving force behind
the increase in household liabilities is the “other debt” category – like unsecured loans, credit-
and shop-card facilities, municipal bills that all have high interest rates – which outpaced
the increase in household mortgages.
It comprises 47% of total liabilities in 2013 – a 10% rise since 2009.
Accordingly, household liabilities account for three-quarters of disposable income, up 2.4 percentage points from the end of 2012.
Real liabilities per household increased R1 230 to R63 277 in 2013, lower than the R63 634 registered in 2011 and much lower than the estimated R76 056 of 2007.
Real consumption expenditure by households slowed in Q4 2013 from a year earlier, as disposable income was stretched by restricted access to credit, an increase in over-indebtedness and rising consumer price inflation.