Renée Bonorchis
1 October 2008
Johannesburg — WORLD markets regained a measure of composure yesterday, clawing back some of the losses sustained in a wave of panic selling on Monday after US legislators shot down a $700bn bail-out package designed to save the global financial system from disaster.
The dollar surged and global stocks staged a recovery after Wall Street's worst day in 20 years, as investors bet Washington would eventually pass the plan.
And as traders braced themselves for an outright crash, world stock markets came back strongly, with the JSE all share index rising 3,2% to close at 23835 points.
Volatility was still extreme and market indicators were confusing, with stocks up, bonds firming, the rand weakening, the oil price gaining and commodity prices plummeting.
The platinum price fell 7%, dipping below $1000/oz for the first time since March 2006.
Some commentators said stock exchanges did not fall apart because the US might still come up with a rescue package.
Others said the US Federal Reserve might cut interest rates this week.
US stocks rallied as expectations grew that legislators would salvage the $700bn bail-out, helping the S&P 500 recover more than half of Monday's 8,8% plunge.
JPMorgan Chase , Citigroup and Bank of America jumped more than 13% as Senate leaders vowed to resume work on the bail-out plan this week after its rejection spurred the S&P 500's biggest decline in two decades.
"The market appears hopeful that something will happen," said John Carey, a Boston-based money manager at Pioneer Investment Management.
The S&P 500 rose 52,21 points, or 4,7%, to 1158,60 in New York trad e late yesterday. The Dow Jones Industrial Average gained 392,90, or 3,8%, to 10758 ,35 after tumbling by a record 777,68 points on Monday.
Warwick Lucas, senior investment analyst at Imara S P Reid, said yesterday the market may have taken the view that it had "reached an exploitable point of capitulation".
"Or it may be excitement on the European Union's inflation data. Or we could argue that because emerging markets are so much better run than developed markets, there is rotation into them. It could even be short squaring -- London has been very short for a long time ... I don't know if all of the above or none are true," Lucas said.
The global financial catastrophe continued with Icelandic bank Glitnir, Anglo Irish Bank and Belgium bank Dexia bailed out by their respective governments. The Bank of Canada said it would buy $3,8bn of securities from commercial banks and brokerages for 28 days, and Rus-sian authorities, spooked by market movements, closed their stock exchange for two hours. Yesterday also marked the end of the third quarter which would have had traders closing out positions. Craig Pheiffer, GM of investments at Absa Investments, said, "Clearly there are also bargain hunters in the market after Monday's fall, but despite all the evidence of value out there, you still need to be very careful and not rush into any major long-term investment decisions. Locally, we also had quarter end, so one should be careful about reading too much into the positive move on the bourse."
Lucas said if the rescue did not come through, then the US and the European Union would "suffer mightily".
The rand weakened to R8,37 to the dollar but it settled back to R8,31 in late trading. RMB Asset Management's John Cairns said RMB was convinced the rand would adjust again this year. "For now we stick with our view of R8,50 to the dollar and R12,33 to the euro."
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