THE MARKETS Jacques Magliolo
THE Pick ‘n Pay strike has drawn a new kind of investor on to the Johannesburg Stock Exchange. In addition to the usual bulls, bears and stags we now find “anarchists”.
These are traders who invest in the stock market “only when there is violence and strike action, which disrupts production to the point of anarchy”, says a dealer, adding that “such dealers are always sure that the market will bounce back once the strike is over”.
These investors follow a basic Wall Street Stock Exchange principle, which states that shares should never be sold on account of a strike, “because strikes are always temporary and the market always corrects after the event”.
A look at the fluctuating Pick ‘n Pay share price proves a point. The share is now trading at 1 300c compared to 1 575c only two weeks ago.
Yet many market experts are sceptical that anarchists are accurate. They say that, while this may be true in the US or in other countries, the JSE seems to operate under different rules.
“Wall Street is a long way from here and I doubt whether their dealers could survive in this particular mass of disorder,” says one dealer, who agrees that different factors apply to the JSE.
“How can Pick ‘n Pay bounce back when the volume traded on Tuesday was far higher than the Industrial Index volume?” On that day 54 900 Pick ‘n Pay shares traded, which is 0,6 percent of its annual trade, while the total volume of industrial shares traded (as a percentage) was not even near 0,1 percent.
In essence, these analysts say trade in Pick ‘n Pay shares is already high and, therefore, the share price is unlikely to increase in the near term.
Anarchists disagree. They indicate the company will ultimately not suffer from the strike as it is far too established to “be broken by unions”. The company will simply push up prices after the strike is settled, and the share price will return to its annual high of 1 625c, they say.
Bearish investors offer another viewpoint. They believe this strike is the start of country-wide union action across all sectors, which will cripple the economy and companies. They say the market is directionless and will drift on a total lack of interest and not on any fundamental or technical factor.
In addition, on Tuesday, 98 shares registered falling prices compared to 72 increases and this is a “definite warning signal”. In contrast to a strong bull or bear market — when the trend is clear and it can take months to change direction — this market can change course in an instant.
Says a Cape Town-based analyst: “Anything can trigger off a flood of buyers or sellers on the JSE without any given notice.” He reasons that there is no trend present. “Without ceilings or bottoms, prices can go anywhere.”
So what has this strike taught investors regarding the JSE’s reaction? Firstly, the market discounted the possibility of violence two weeks ago and share prices fell accordingly.
Secondly, the share prices will now drift in a wait-and-see attitude during the strike and, thirdly, the market will only resume its previous trend once the strike is over.
Essentially, key words are “extreme violence”. The market will simply not react in its absence.