Heightened volatility has become a fact of life
Investors have steadily stepped back into risky assets, with a debt deal between Greece and creditors helping to lift the cloud that has hung over global markets for weeks.
Like its peers elsewhere, the JSE has endured a roller coaster ride since its peak in April, partly affected by the prospect of higher US interest rates and recent volatility in China’s stock market. Indeed, jitters about the Chinese market have jolted already struggling commodity prices, leaving mining stocks exposed.
The Shanghai Composite, by far the best-performing market this year, encountered a severe correction early in July, leading authorities to adopt measures to stem the market slide. The much-criticised steps included the suspension of some stocks.
“My view is that after a bull market of over 6½ years, one must accept heightened volatility. If the kitchen gets too hot for an investor, then that investor needs to cut back on his or her risk profile,” says Paul Hansen, portfolio manager at Stanlib, which has over R551bn in assets under management.
While the Chinese share market has since stabilised after tumbling as much as 30% from its recent highs, the scare about the potential fallout has dealt a blow to the struggling resource market. The country consumes broad ranges of primary products such as iron ore.
After dominating the better part of the second quarter on the JSE, the resource index lost ground as financial and industrial stocks played catch-up. But the pain was concentrated in the platinum and gold sectors, which dropped 8% and 13% respectively in three months to June.
“The recent gyrations and occasional short-term technical improvements in commodities have been insufficient to meaningfully alter the overall trend, which retains its bias to the downside,” say Imara SP Reid analysts. “While the market is occasionally probing for clear support for industrial and ferrous metals, for the moment a decisive catalyst for upside and trend reversal remains absent.”
The broader market has made inroads since its bottom on July 7 at about 49 997,78 points, backed up by the powerful rebound in financial and industrial shares.
The easing tension around the Greek debt crisis has provided a chance for investors to snap up shares that have been weaker across a range of sectors.