JSE woes spark fear of bear mar­ket

Sunday Times - - Business Times - By ANDRIES MAHLANGU

● The JSE suf­fered a fresh sell-off this week, rais­ing con­cern that the cur­rent de­cline could de­velop into a bear mar­ket with panic and fear feed­ing a vi­cious cy­cle.

The all share in­dex lost as much as 4% over the week be­fore re­cov­er­ing half the losses by Fri­day. It is about 14% be­low its record peak reached in late Jan­uary.

Old Mu­tual Multi-Man­agers an­a­lysts Dave Mohr and Izak Oden­daal note that the tra­di­tional def­i­ni­tion of a bear mar­ket is a 20% de­cline but call this some­what ar­bi­trary.

“The big­gest risk of a bear mar­ket is of­ten not the loss of value of shares, but whether in­vestors re­spond to the price de­clines by crys­tallis­ing losses and sell­ing out. This is where the real value de­struc­tion usu­ally hap­pens,” they wrote in a re­cent com­men­tary.

“The def­i­ni­tion of a bear mar­ket should prob­a­bly in­clude a psy­cho­log­i­cal el­e­ment, when or­di­nary in­vestors and pro­fes­sion­als alike are gripped with angst and pan­icked sell­ing is rife.”

In­vestors may have be­gun the year full of op­ti­mism but are hav­ing night­mares now, with the Alsi set for its worst per­for­mance in a decade.

Though there are many mov­ing parts to the poor re­turns over the past nine months, me­dia and in­ter­net group Naspers stands out as the big ele­phant in the room. Ac­count­ing for al­most the fifth of the Alsi, when Naspers coughs the mar­ket catches a cold.

Naspers has had years of suc­cess through its 31% in­ter­est in Ten­cent, the Chi­nese tech com­pany that owns on­line games and so­cial me­dia net­work WeChat and boasts nearly a bil­lion ac­tive users. Nearly a year ago, Ten­cent’s mar­ket value hit $500bn (about R7.2tril­lion) — a feat that trans­formed it into a global tech gi­ant along­side Face­book, Ama­zon and Ap­ple.

But its shares have since come off the boil on the Hong Kong Stock Ex­change amid con­cerns about slow­ing earn­ings growth and as Chi­nese au­thor­i­ties tough­ened their stance on the ap­proval of new video games.

“While the cur­rent stance by the reg­u­la­tors could mod­er­ate, one gets the sense that the com­pany will strug­gle to achieve the same growth tra­jec­tory as it has done to date,” said Devin Shutte, head of in­vest­ments at The Robert Group.

Ten­cent co-founder and CEO Pony Ma has taken it on the chin, with his net worth shrink­ing to $29bn from $47.4bn at the start of the year, ac­cord­ing to Bloomberg’s bil­lion­aires in­dex. Naspers has felt the domino ef­fect, drag­ging along with it the lo­cal share mar­ket.

Only the top end of the re­source mar­ket — An­glo Amer­i­can and its sis­ter com­pany An­glo Amer­i­can Plat­inum, and BHP and Sa­sol — have of­fered a sil­ver lin­ing in terms of de­cent re­turns since the start of the year.

Shares of com­pa­nies with a big fo­cus on the lo­cal econ­omy have had a par­tic­u­larly rough ride, mov­ing be­tween the ex­tremes of op­ti­mism and de­spair. Banks, re­tail­ers and other do­mes­tic in­dus­trial stocks gained in the first half of the year on op­ti­mism that the econ­omy would turn the corner un­der Pres­i­dent Cyril Ramaphosa.

The op­ti­mistic sce­nario at the time was re­flected in the stronger rand and de­clin­ing govern­ment bor­row­ing rates. Eq­uity in­flows picked up, sig­nalling that for­eign­ers had bought into the “new dawn” nar­ra­tive.

“We think the mar­ket went ahead of it­self in the Ramapho­ria phase. A lot of op­ti­mism was priced into the rand, which re­sulted in [SA-fo­cused] stocks ral­ly­ing. Later in the year, SA had a mas­sive miss on GDP fig­ures, which caused the rand to weaken,” said Mar­ius Grob­ler, pri­vate client trader at Unum Cap­i­tal.

SA was also the vic­tim of the shift in global sen­ti­ment, which of­ten sees for­eign­ers sell­ing lo­cal bonds and eq­ui­ties at the click of a but­ton. Net bond out­flows are R55bn year to date, ac­cord­ing the JSE data. For­eign­ers have ditched a net R13.4bn worth of lo­cal shares in the same pe­riod.

SA tends to suf­fer the same fate as other emerg­ing mar­kets, which in­vestors gen­er­ally deem to be risky.

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