/ 1 June 2010

Never sell a dull market

The JSE suffered a terrible month in May, dropping 5,2%, reminding us that May still continues to be a horrible month for investors across the globe.

It was difficult to find any pockets of strength, apart from gold, as investor confidence was rocked by numerous macro events. The eurozone continued to be the main cause for concern as the sovereign debt crisis threatens to destabilise the world recovery.

Signs of risk aversion were everywhere, with Libor spreads (interbank lending) now starting to widen as the volatility index pushed over 40%.

Spain appears to have inherited Greece’s problems and the bank of Spain had to step in and take control of one of the country’s larger regional lenders. Still simmering in the background are the tensions in the Korean peninsula and BP’s problems in the Gulf of Mexico which has seen their share price fall by 30% since the oil spill started.

As the week progressed there appeared to be a far calmer tone to the markets as the investors took heart from the likes of the Economic Cooperation and Development’s upgrade of its forecast for global growth of this year and the next.

Even with all this bad news around, there are still buyers in our markets at the lower levels and you get the feeling that a lot of fund managers have been out of the equity markets entirely. With the year now six months in, some underweight funds will have to start allocating at some stage before they miss the next leg up.

They can’t sit on their boats in Knysna forever.

Monday was a waste of time as New York and London were shut for holidays. Shoot me if I have to trade a day like that again — 1,8-billion shares by 3pm, 70% less than normal.

There is an old saying that you “never sell a dull market” and with volumes drying up with the World Cup around the corner and the Europeans looking forward to their summer, I think it’s time to continue adding to some of our long equity positions.

Time will tell if we should be staying out after last week’s volatility, but when people start getting overly cautious and calling for the collapse of Europe, it’s a nice time to be a contrarian. Watch this space.

  • Nick Kunze is head of dealing at BJM Private Client Services

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