All the conditions are just right for a good old party late into the night.
Tito Mboweni has created an open bar by not raising interest rates when many were expecting another hike. Couples are getting together all over the dance floor, like Implats and Afplats eyeing each other out with great intent. Resources and commodities are looking good to everyone, and the afterparty is being sponsored by the 2010 World Cup contracts.
Like any good party, no one wants to leave early because you never know what you might miss. The all-share index is having a ball, rallying to record highs with very little holding it back. Although some investors might consider it to be slightly overvalued, no one wants to miss out on another week of spectacular gains.
“Last year, the Alsi returned 38%,” says Mark Wurr, head of trading at Global Trader. “Any fund manager returning less than that was effectively underperforming. That’s why everyone is hesitant to take profits right now because they’re not entirely sure how far this will go.”
All the big players acknowledge that it is time to take profits — and healthy profits, at that — but there will be no one reaching for their coat to leave. The opportunity cost right now is just too big.
That does not mean that investors should not be ready when the inevitable sell-off does happen.
Global Trader is a pioneer in the provision of contracts for difference in South Africa, with reach in 29 countries. Contracts for difference (CFDs) are leveraged trading products that create a large theoretical position for investors who are only required to maintain a small margin in exchange.
Although CFDs are generally seen as a speculative product used over the short term, their role in diversification and hedging can also be extremely valuable. For example, there are markets overseas that can offer returns on a similar scale as South Africa, but are affected by completely different market factors.
Global Trader offers its local clients access to emerging markets such an India and the Russian Federation, which have seen substantial gains. If the South African market is getting a bit overheated, why not diversify your portfolio and avoid concentrating the risk?
With the local market looking for signs to sell, all eyes will be on key indicators in the near future. Local interest rates have remained the same. Oil price seems stable between $55 and $60. The Middle East has been relatively quiet.
Perhaps the chief of the United States Federal Reserve, Ben Bernanke, will give some clues on what tack monetary policy in the US will take? With US elections on the horizon, the man who many analysts believe to be “impossible to read” will be very reluctant to drop any balls.
If you are keen to get knee-deep into the party spirit, Wurr says there is still plenty of opportunity around.
“I think platinum is heading towards $1 220, which is a huge level for it to hold in the long term. Copper remains volatile with demand out of China and the US booming, while gold is hovering nicely at relatively high levels.
“There is a lot of momentum in the market, but I think growth will normalise rather than keep at this increasing pace. Even then, I think going short on the Dow wouldn’t be a bad bet right now.”