Get more Mail & Guardian
Subscribe or Login

Is risk aversion back?

The economic data continues to feed through on the weaker side and in the absence in any major news the market continues to drift lower.

Last week was good week for our shorts as the market gave back 2,8% and we made some good money by shorting the market.

We used the opportunity to take some trades off the market, as the low volume is making me a little nervous. We expect things to be a little quiet in August, but volumes were down 30% on Monday and you don’t really want to play in that space.

Something that has been creeping up in the background is the yields on European bonds, and this is an excellent barometer to risk. When yields fall, risk is off and when they rise, the risk is back on.

If one takes a look at Ireland, thought to be the more stable of the Eurozone countries, the spread on its sovereign credit default swaps rose by 41%.

And the problem is not local, and what makes it ever more strange is that there was no bad news out on banks or slowing GDP numbers either. In fact, the German GDP numbers that were recently released were excellent and showed that a weakening Euro actually has a silver lining.

Rather it appears Ireland has been caught up in a renewed risk aversion. Irelands spreads widened last week in tandem with those of Germany, the UK, Italy and France, as with other European debt, which was up by more than 25%.

Bond markets tend to be ahead of the curve, so to speak, and one needs to keep these on the radar as countries like Greece are now sitting with yields on their 10-year bonds out at 11%, which is getting close to the levels of pre-crisis.

I still feel that we will finish August lower than we started it, so happy to run the portfolio net short. But with risk looking like it’s sneaking back on, it’s best to keep some powder dry.

  • Nick Kunze is head of dealing at BJM Private Client Services
  • Traders’ jargon:
    “Long” is when you have bought a share with the expectation of the share price going up.

    “Short” is when you have sold a share you have borrowed with the expectation that the share price will fall and you will buy it at a cheaper price to settle the deal.

    Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information

    Subscribe to the M&G

    Thanks for enjoying the Mail & Guardian, we’re proud of our 36 year history, throughout which we have delivered to readers the most important, unbiased stories in South Africa. Good journalism costs, though, and right from our very first edition we’ve relied on reader subscriptions to protect our independence.

    Digital subscribers get access to all of our award-winning journalism, including premium features, as well as exclusive events, newsletters, webinars and the cryptic crossword. Click here to find out how to join them.

    Related stories

    WELCOME TO YOUR M&G

    If you’re reading this, you clearly have great taste

    If you haven’t already, you can subscribe to the Mail & Guardian for less than the cost of a cup of coffee a week, and get more great reads.

    Already a subscriber? Sign in here

    Advertising

    Subscribers only

    Life Esidimeni inquest postponed until August 30

    The lawyer for the bereaved families argued that Dr Makgabo Manamela’s requests for postponements have a negative impact on the families of the deceased who seek closure

    RECAP: Mbeki tells ANC that land without compensation goes against...

    ‘This would be a very serious disincentive to investment,’ says Thabo Mbeki in a document arguing that the ANC should not proceed with the Constitutional amendment of section 25

    More top stories

    Magashule claims his suspension of Ramaphosa was lawful

    In his application for leave to appeal the high court judgment, Magashule argues that the court erred in holding that Ramaphosa’s suspension was not lawful without giving any explanation for that conclusion

    Life Esidimeni inquest postponed until August 30

    The lawyer for the bereaved families argued that Dr Makgabo Manamela’s requests for postponements have a negative impact on the families of the deceased who seek closure

    Wayde van Niekerk misses 400m final to compound SA pain

    The world record holder was a medal hope but has ultimately been outrun by injury

    Canada’s ReconAfrica oil and gas exploration in Namibia and Botswana...

    Spills and pollution would harm the Okavango Delta and the Tsodilo Hills world heritage sites
    Advertising

    press releases

    Loading latest Press Releases…
    ×