Worse may come in SA markets

South Africa’s markets could bottom out another 1 500 points down, Sasfin market commentator David Shapiro predicted on Friday.

“We’re very, very close to the bottom. I reckon we’ve got another few points to go, then we’ll start to bounce up,” he said amid reports that the JSE had joined the global bloodbath.

“That would be in line with long-term valuations,” Shapiro pointed out. “We get very emotional over these things. I don’t think we’ll get there. I think we’ll start forming the bottom now.”

He nonetheless added: “The bottom is the bottom. The bottom is zero ...”

Already people are describing the “giveaway” prices as “crazy”, but he said they can benefit if they are prepared to wait a bit and buy good companies with assets.

“You’ve got to have courage,” he said.

He said the South African markets were on Friday tracking what was happening on world funds. That’s what the problem was and had been for the past week.

“World markets are falling in a heap. The Dow Jones is down 7% ... It has just been a horrific week in global markets in terms of destruction of wealth and falls in prices.”

The concern was that more banks would go insolvent and that the world economy was going to go into recession. “We’re seeing people abandoning stocks, getting cash.”

No one knew who was selling. “It’s difficult to get to grips with who’s triggering this,” said Shapiro.

In the past week, a number of countries had cut rates on top of other packages designed to alleviate the credit crisis. These were going to take time to take effect. “Selling could continue until it exhausts itself,” he said.

There had been a massive withdrawal of foreign funds from the South African markets as investors took flight to the safe territory of the dollar.

The JSE was down 4% by mid-afternoon on Friday.

Shapiro said the JSE had reached an all-time peak in May this year, driven by high commodity prices. With the oil price up and the dollar weak, people went into commodities for protection against inflation and the falling dollar.

The all-share index was at 33 233 on May 22. On Friday, it was 39% lower. “That’s massive,” he said. However, for the year it was down 30% and on a year-to-year basis it was “not that bad”. 

Put into perspective, someone who came into the market five years ago would still be up 17% per year.

Even the depreciation of the rand would come into the economy, stimulating exports and local manufacture by making imports more expensive, said Shapiro, adding that the South African Reserve Bank’s monetary policy committee had been right to leave rates unchanged.

What was interesting was that the market was still in overbought territory over 10 years. “So we are correcting. So the markets are correcting aggressive gains since 1998 ... We’re seeing the wind-down of 10 years of growth. The market is just realigning the trend,” he said.

People in the market since about this time in 1998 would be up 16% per year, excluding dividends, which would increase the figure to about 18%.

“It seems to be ending years and years or excess and over-optimism,” said Shapiro.—Sapa



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