Renée Bonorchis
29 January 2008
Johannesburg — LOCAL stocks were under pressure again yesterday, with the JSE all share index losing 3,05% of its value to close at 25692 points, while global markets fell amid a slew of bad news.
But gold and platinum hit record highs yesterday, as investors fretted over supply tightness with a power crisis in top global producer SA hobbling output, traders said.
Following a poor trading performance in the US late on Friday, Asian markets took a hammering in the early hours of yesterday, which meant that the outlook for SA was bad before the day had even begun.
As trade opened in SA, equities fell, bonds weakened, the rand lost ground against major currencies and concerns arose about local growth and foreign investment as mines remained shut and rumours of imminent retrenchments abounded.
SA was not alone in its pain. The UK's FTSE 100 lost more than 2% of its value, French stocks dropped and the US markets opened down.
However, John Biccard, portfolio manager at Investec Asset Management, said yesterday it was unlikely that SA was entering a bear market.
"Local equity valuations are low and, globally, central banks are cutting rates -- a scenario that does not usually accompany protracted bear markets," Biccard said. But a global recession was "very likely".
Analysts around the world continued to cite fears of a global slowdown as the reason for the markets' continued sell-off -- which left the JSE 11,3% weaker on the year by the close of business yesterday.
The JSE is not the worst performer, however. Japan's main Nikkei index is down more than 14,5% and only 13 of the 90 indices tracked by Bloomberg have made any gains in dollar terms this year. The three exchanges that have risen most in the year to date are Kuwait (6,21%), Mauritius (5,95%) and Ecuador (5,02%).
Yesterday's bad news included the fact that Fortis, Belgium's largest financial services company, became the latest victim of subprime losses; Nippon Steel showed an unexpected profit fall; and the UK started to talk about the possibility that it too was facing a recession.
Erik Nel, part of the fixed-interest sales team at RMB, said yesterday he had had better days and that the amount of negativity in the market was starting to get to him. He said if the JSE fell further, then institutional funds would become more overweight
in bonds and their buying power would deteriorate. In turn, bond yields would weaken. Inflation data and an interest rate decision later this week could also hold nasty surprises for bonds and other financial instruments.
With many local mines still closed due to a lack of electricity yesterday, supply concerns kept precious metals prices buoyant. Platinum touched $1695/oz and in after-hours trade gold rose to new highs above $928/oz. Copper , however, fell and this hurt SA's biggest companies -- Anglo American and BHP Billiton, contributing to the fall-off on the JSE.
The oil price also dropped with Brent crude trading at just under $90 a barrel.
Usually a rising gold price would boost the rand, but not yesterday. The news of SA's energy crisis was leaking out and foreign investors were running scared. Data yesterday showed foreign investors were net sellers of bonds and equities at the end of last week. But all may not be lost.
"The US is running a huge current account deficit and growth in the US is much slower than in SA," Biccard said. "The States also has to deal with a major financial crisis and they are cutting interest rates to stave off a recession. US rates are likely to be 2% lower in a year's time and interest rates in SA should be flat. Therefore, rand weakness against the dollar should be limited."
A number of market commentators maintain that SA will not slide into a recession thanks to the huge sums allocated for infrastructure development in the next four years, but most concede that local growth will be significantly hampered by local and international events.
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