MAR­KETS

Financial Mail - Investors Monthly - - Contents - An­dries Mahlangu

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.

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