Stephen Gunnion
29 October 2008
Johannesburg — THE rand and JSE-listed stocks are likely to stay under pressure while foreigners remain net sellers of South African equities, says Stanlib economist Kevin Lings.
And despite the rand's strong recovery against the dollar so far this week, Lings says the unit is unlikely to retrace to pre -financial crisis levels of below R8/$. Instead, Stanlib expects the rand to trade at R10/$ by the end of next year.
Lings was briefing the media on the effect on SA and other emerging markets of the financial crisis that was sparked by the US sub prime mortgage market.
While $900bn had been invested into high-yielding emerging markets last year, this was likely to be reduced dramatically this year and next year, he said.
This was illustrated by the South African stock market, where foreigners had been heavy net sellers of equities.
Figures released by the JSE show that foreigners were net sellers of R6bn of shares last week, bringing total net sales by foreigners for October to R27bn.
The last worst month for foreign sales of South African stocks was in January -- at the height of the power crisis.
Lings said it was difficult for the JSE to rally when foreigners were selling South African equities.
"For every day in October foreigners turned net sellers of SA equities," Lings said.
"It's this more than anything that has led to currency weakness and stock market weakness."
Lings said the fall in foreign ownership of South African shares would be positive for the current account as it would lead to a smaller outflow of dividends.
He said the net foreign sales of equities this year followed four years of strong foreign buying of South African stocks between 2004 and last year.
However, he said SA's fundamentals had not changed and there had been heavy selling in all emerging markets.
While shares on the JSE had lost 57,7% of their value in dollar terms so far this year, some other emerging markets had fared far worse. Of the worst performers, Russia had fallen 71%, Turkey had fallen 68% and Hungary had shed 63%.
The rand, which weakened 10% last week, was also expected to remain volatile for some time, he said. The rand was by far the worst performing currency on a year to date basis and was "ridiculously" oversold, with fair value still estimated at R7,50-R8 to the dollar. Lings said Stanlib expected the rand to recover.
"We think the currency can come back, but not to R8/$ ," he said.
Stanlib's director of retail investing Paul Hansen said hedge funds were helping drive the huge global equity meltdown.
There had been a proliferation of hedge funds in recent years, and they had become major sellers of equities globally.
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