Renée Bonorchis
7 August 2007
Johannesburg — THE JSE all share index continued to slide yesterday, having wiped out more than 8% of its value in the past two weeks to close at 26904 points.
"I'm not foreseeing disaster," said Craig Pheiffer, GM of investments at Absa Asset Management Private Clients. "It's unnerving but the local growth story is still intact and the global growth story is still intact. The local earnings story is still intact."
He said that even though the all share index was now only 9% up on the year, it could still end the year 15%- 20% firmer.
Global equity markets have been particularly volatile in the past two weeks, mostly due to a worsening subprime debt crisis in the US which is having ripple effects across countries and companies. Subprime refers to the practice of making loans to borrowers who do not qualify for favourable market interest rates .
The consolidation across various markets had been caused by bourses reaching record levels, the subprime issue, the volatility of global equities and the high correlation between markets, said Pheiffer.
Thanks to global financial wobbles, emerging markets have been viewed as more risky and, apart from the local equity market taking strain, spreads have blown out in the bond market.
The yield on the government's benchmark bond, the R153, weakened even further yesterday to a low of 9,4%. It has dropped nearly 5% of its value this year.
RMB's fixed-interest team thought it might get worse before it got better. While the merchant bank's central view was one of robust growth and stable inflation rates, it said any slowdown in global growth could fuel risk aversion further.
Pheiffer thought the market may be getting spooked by the subprime mortgage crisis. One good thing was that it had brought the equity market back to an average price-earnings ratio of about 15,5, making shares cheaper. Pheiffer said it was a "little strange" yesterday that commodities had a relatively good day, but failed to help the usually commodity-mad JSE.
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