Stephen Gunnion
13 October 2008
Johannesburg — TRADERS will be perched on the edge of their seats when markets open this morning after global stocks went into free fall on Friday, capping one of the worst weeks since the 1987 market meltdown.
The Dow Jones industrial average ended the week having lost more than 20% of its value in the past eight trading sessions. More than $4-trillion was wiped off global markets last week.
With the spectre of a recession looming, investors will be looking for more government intervention this week to help end the crisis of confidence. Simon Hudson-Peacock, head of equities at Cadiz African Harvest Asset Management, said that on top of efforts so far, which included bail-outs, financial aid, deposit guarantees and interest rate cuts, governments would have to continue building confidence in global markets.
However, he said it would take time for investors to regain trust. "Ultimately they should feel the benefits of the packages that have been put together. There is just a high level of uncertainty and negative sentiment," he said on Friday.
In New York on Friday, the Dow plummeted more than 700 points, or 8%, shortly after the opening bell. In a stomach-turning session the Dow made two sudden spurts into positive territory -- one in the first hour of trade -- before closing down 128 points, or 1,49%, at 8451,19.
The JSE also fell, closing 3% weaker at 20595 on Friday, taking its losses so far this year to 29%, as it followed the lead of sagging Asian, European and US markets. After falling to a new seven-year low of R9,49 to the dollar, the rand recovered to end the week at R9,44.
The negative sentiment led to Tokyo's Nikkei-225 index recording its largest losses since the crash of October 1987, falling 11% before recovering slightly to close 9,6% lower.
European stocks also came off their lowest levels, but London's FTSE 100 still ended 8,8% down and the Paris CAC-40 closed 7,7% softer.
"We need confidence to return into the banking system and hopefully we can sort our way through this," said Steve Goldman, market strategist at Weeden .
After the huge sell-off of the past couple of weeks, investors might be wise to sit tight, Hudson-Peacock said.
"I would say that now would not be the time to be selling equities," he said.
While it was impossible to try to call the bottom of the market, stocks seemed oversold. Even discounting weaker profitability because of the global slowdown, Hudson-Peacock said stocks appeared to be in fair value territory or better.
The JSE had fallen 30% since the beginning of the year -- and 45% in dollars.
"People are probably getting out at any price right now and therein lies the opportunity for the patient investor," Hudson-Peacock said.
Local banks were mostly not exposed to the subprime debt problems plaguing the US and Europe. Instead, SA was exposed to second-round effects the global slowdown would have on its economy.
Falling commodity prices would affect profits of resource companies, and tax revenue.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
