Stephen Gunnion
8 October 2008
Johannesburg — SOUTH African investors should not panic, despite the huge sell-off of equities worldwide in which markets have shed up to a third of their value so far this year.
Although the local market had been caught up in the contagion, as offshore funds reduced their holdings in South African equities, JSE CEO Russell Loubser said the exchange still had many "very strong companies paying good dividends".
By the end of last week, foreign investors had reduced their South African equity holdings by R24bn this year, compared to net purchases of almost R60bn over the same period last year.
This was partly behind the 27% drop in the JSE all share index so far this year.
The JSE's market capitalisation had fallen to R4380bn from R6096bn a year earlier.
Last week foreign investors were net sellers of R3,34bn of local equities.
Loubser said foreign fund activity in SA was huge, accounting for 40%-50% of the JSE's trade.
"So if foreigners are running out of cash on that side they have to sell something to make that up. Here (in SA) there is still relative value they can sell," Loubser said.
Local investors were also selling assets, either because of nervousness or because they hoped to get back into the market at lower prices.
Loubser said SA's banking system remained in a stronger position than many other markets.
Although bad debts had risen as a result of the slowing economy and the recent rise in credit extension, banks had provided for it. Credit extension had started to fall and the interest rate cycle and inflation appeared to have peaked, he said.
"It doesn't look too bad for SA, but if the overseas situation continues like it is then we are still in for some hard times. The problem is not over and we will be buffeted by the shock waves. We cannot escape the uncertainty and the selling pressure we are seeing."
Loubser said the recent events, which started with the subprime crisis in the US last year and were due to lax lending practices, would lead to better regulation of the market. "I have no doubt that the regulatory environment will change. It needs to change. We can't bring the world to the brink like this.
"The problem has to be digested over time and it's not going to help between now and then if one panics," Loubser said.
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