From Gareth Stokes, MoneyWeek editor, SA

Dear MoneyMorning reader

Last week, we pondered whether the sentiment fuelling the domestic equity market was misplaced. This week, we’re almost sure it is. Even as Absa Bank announced unimpressive half-year results, the JSE All Share Index powered ahead 547 points. The euphoria is so complete that Monday’s 24,806 close is the index’s best level since September 2008. What you need to decide – given poor earnings expectations across the board – is if local shares are “fair” value at just 25% below their all-time highs?

There’s no doubt more companies will follow Absa’s example when they report earnings for 2009 and 2010. The banking giant posted a 19% dip in headline earnings to R3.8bn, while earnings at its retail banking division slipped 31%. Absa Capital could only chip in with R129m after absorbing a write-down of R1.1bn on “accidental” futures positions in Pinnacle Point Group, Blue Financial Services, Sekunjalo and IT firm ConvergeNet. And the group is still wrestling an unprecedented surge in bad debts. Would you believe investors added to their holdings and sent the counter 1.87% higher on the day?

South African investors are a forgiving lot. Instead of punishing the executive for poor decisions, they reward them for any manner of corporate shenanigans. We’d love to know who (at Absa) will be held accountable for the R1.1bn “slip” just mentioned. It’s a lot of shareholder value to so nonchalantly write off. And there are other big corporations with similar “shareholder be damned” attitudes. MTN’s announcement on 31 July 2009 – at which time it promised further details on the proposed Bharti Airtel merger – was simply that talks would continue for another 31 days. Shareholders get to spend another month in limbo.

Will the much hyped “green shoots of recovery” take hold by then? If you follow the international economic data, you may have spotted some signals to support recent market improvements. Commodity prices have been on the up for some time and are significantly above recent lows. And some analysts believe the US may even confirm the end of its recession at the end of the third quarter 2009. But, the one thing the financial crisis has taught us is, the world is about much more than America. The East will be the driving force behind any long-term sustainable recovery. The fortunes of the 21st century will be made in China and India, not in the developed world.

On the domestic front, June’s inflation number was much better than expected. Activity in the bond market – which is priced for perfection – suggests 4.5% inflation is possible. MoneyWeek greeted that prediction with an incredulous snort; but apparently the bond market never lies! The number local economists will pounce on is July 2009 New Car Sales, due out in a couple of days. This statistic will probably confirm the stark contrast between the household and business consumer. While the domestic consumer is showing signs of a slow recovery, corporations are coming under the cosh. Latest insolvency statistics show that small and medium enterprises are closing their doors as households remain frugal despite repeated rate cuts. It’s going to take time for the recovery to filter through to all areas of the real economy.

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Turning to the markets...

The JSE all share index closed 0.78% down on Friday. The gold mining index slipped 0.96%. Resources pulled back 1.69%. Banks and financials lost 1.75% and 1.09% respectively. Industrials gained 1.1% and the platinum mining index closed 3.26% down.

London's FTSE100 fell 0.87%. The Dow Jones slipped 0.82% and the Nasdaq decreased 1.19%.

Tokyo's Nikkei fell 2.99%. Hong Kong's Hang Seng lost 2.64%.

Brent crude is currently trading at $70.90 per barrel.

Spot gold's trading at $943.56 and platinum was last quoted at $1247.

And here's how the rand is performing against the major currencies:
R/$ 8.17
R/₤ 13.42
R/€ 11.55