JSE woes spark fear of bear market

● 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.