Q&A on the current market turbulence from Peter Brooke

  1. old-mutualWhat are the main reasons for the JSE’s All Share declining by so much over the past few weeks?

The South African equity market has corrected for a number of reasons including:

  1. The strong US dollar has meant lower commodity prices dragging down our mining shares, which have fallen nearly 20%
  2. Weaker growth in China has worsened the situation for mining companies, with the iron ore price down negatively impacted profit expectations
  3. The weak South African economy has meant a number of local companies have produced disappointing earnings
  4. Global markets have fallen and our market follows global trends. Global markets were due a correction following a very strong run and risk appetite decreased on the back of lower global growth fears, especially in China and Europe.
  1. Are worries about the SA economy’s feeble growth catching up to the stock market or does it not really have such a big impact?

The JSE is dominated by large global companies and less than half of the markets earnings are driven by the South African economy. We expect this percentage to continue to shrink as South African companies invest outside of South Africa to access better growth prospects. That said the tough local economy is a headwind to profits and hence the market.

  1. To what extent has the JSE’s run this year (and last year) been driven by only a few shares – thinking of Richemont, SABMiller, Naspers and others – and how much of the recent decline can be attributed to them?

The JSE winners YTD are a mixed bag of companies such as Telkom, Investec and Steinhoff. Many of the winners are benefitting from management action delivering improved earnings despite the macroeconomic environment.

  1. What should retail investors do?

Most retail investors are invested in multi-asset class funds, or solutions, which have a diversified mix of assets. These assets such as cash, bonds and international investments have helped cushion the fall from equities and therefore there is no need to panic. In many cases the underlying fund manager would have increased the level of cash before the sell off and would now be looking for opportunities to re-invest where shares are offering value again. The most important decision the man in the street can make is to keep saving. 

Kind regards.

Sathyen 

SATHYEN MAHABEER | Chief Operating Officer

MacroSolutions

Old Mutual Investment Group (Pty)Ltd

Licensed Financial Services Provider

+27 (0)21 5044614 (telephone) I +27 (0)82 4408801 (cell)

smahabeer@omigsa.com (email) | www.macrosolutions.co.za (website)

Share Button

About southcapenet

Adding value to my domain hosting and online advertising services.
View all posts by southcapenet →