Mungo Soggot
Top economists are pulling their own money out of the Johannesburg Stock Exchange (JSE) amid fears that, 10 years after the 1987 crash, foreign equity markets are in for a heavy correction and the JSE will follow suit.
While the JSE has been falling since August 7 the end of a bull run that began in 1995 most analysts are betting it could tumble further and some are quitting while theyre ahead.
Econometrix economist Tony Twine says he has liquidated the family store of wealth and moved into cash and gilts. I am very light on the JSE.
As far as Econometrixs clients are concerned, Twine says: We are warning them about our disquiet concerning equity markets. There are tell-tale signs of a peak in the near future and we are advising them to hedge their bets for the next few months to see which way the local market goes.
Nick Barnardt, economist for ING Barings, says that, personally, he is staying clear of equities for the time being. For the very near term I favour cash, for the next six months, bonds, and for 12 to 18 months, equities.
Barnardt says that not only are global equity markets stretched, but the outlook for South African interest rates has become less optimistic. He says a cut in the bank rate is unlikely before next March.
All this could quite conceivably take 3% to 5% off the JSE in the next six weeks.
Other economists said that a fall in interest rates could encourage the shift from equities into bonds in line with what is already happening in many foreign markets. Warren Buffet, the United States investment supremo, announced last month that he was quitting equities for bonds.
Syfrets chief economist Sandra Gordon says the Dow Jones is vulnerable to correction: We wont escape it. But she says South Africas solid economic fundamentals should protect the market from any dramatic falls.
In the short term she recommends clients be selective when exposing themselves to the JSE and opt for export-orientated, globally competitive companies.