MAR­KETS

Financial Mail - Investors Monthly - - Contents - An­dries Mahlangu

Emerg­ing eq­uity mar­kets quick out of the blocks

Emerg­ing eq­uity mar­kets have had a blis­ter­ing start to the sec­ond quar­ter rel­a­tive to their de­vel­oped coun­ter­parts, with Chi­nese stocks in the lead.

The JSE has been im­pres­sive, led by re­vived in­vestor in­ter­est in the long-ne­glected re­sources sec­tor as industrial and fi­nan­cial stocks took a back seat.

The Shang­hai com­pos­ite in­dex still oc­cu­pies the top spot among emerg­ing mar­kets de­spite pulling back by mid-May. It has ral­lied a mighty 33% since Jan­uary.

“There have been struc­tural changes, rate and liq­uid­ity in­jec­tions and moves to­wards a more open mar­ket place that con­tinue to un­fold in China,” says Lloyd Pri­est­man, a mar­kets an­a­lyst at Ca­leo Cap­i­tal.

“There is a lot of spec­u­la­tion and in­di­vid­u­als are trad­ing on this mo­men­tum, which could turn at any point, given the run that we have had over the short term.”

Mean­while, the over­sold JSE’s re­source in­dex staged an im­pres­sive come­back in the cur­rent quar­ter, boosted by hopes of fur­ther stim­u­lus from China, which re­mains the world’s ma­jor con­sumer of raw ma­te­ri­als such as iron ore and cop­per.

The re­sources were up 10% from April, out­pac­ing the All Share and ma­jor con­stituent in­dices like fi­nan­cials, which got off to a fly­ing start to the year be­fore cool­ing off.

“A big topic of dis­cus­sion for global mar­kets and for our min­ing shares con­tin­ues to be China: how will Chi­nese growth re­spond to the con­sis­tent yet fairly gen­tle stim­u­la­tion from the au­thor­i­ties?” asked Paul Hansen, port­fo­lio manager at as­set manager Stan­lib, in a note.

Un­der­ly­ing com­mod­ity prices have picked up, most no­tably the iron price, which breached $60/ton — up 25% from its April lows. Still, there are ques­tion marks around the eco­nomic un­der­pin­nings of the broader com­mod­ity mar­ket.

De­vel­oped share mar­kets have so far in the cur­rent quar­ter lagged be­hind emerg­ing mar­kets. Euro­pean stocks have been gripped partly by the sell-off in bond mar­kets. That sell-off gave rise to volatil­ity in the cur­rency mar­kets, push­ing the rand to lows of R12,30/$ be­fore it re­cov­ered to around R11,80/$ in mid-May.

“A num­ber of is­sues around the world are lead­ing to higher volatil­ity in all mar­kets, in­clud­ing bonds, eq­ui­ties, cur­ren­cies and com­modi­ties. In­vestors need to be braced for this volatil­ity,” Hansen said.

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