At the start of the second quarter, with inflation of 9.4% at a five-year high and consumer pessimism setting in, the domestic equity market surprisingly perked up.
Some heavily sold banking and retail counters suddenly showed signs of revival, indicating improved prospects for South Africa Incorporated in six to nine months, according to Paul Hansen, Stanlib director of retail investing.
He noted: “Share prices discount the future, often six months out, sometimes more. The man in the street may be baffled by market behaviour when the news has been so gloomy for so long, but in general terms this is a hopeful sign.
“No one knows when the market will turn and stay positive. There may be a false dawn, but market activity tells us that some shrewd future-spotters are starting to believe that doom and gloom has been overdone and some fundamental positives deserve greater attention.
“These include the growth of our middle class - a positive for the whole economy that is not going to go into reverse overnight - and massively augmented infrastructure. Increases in fixed investment are not turned off like a tap. They play out over several years and will continue to provide jobs and create spin-off opportunities for some time to come.”
In the first quarter of 2008, the JSE All Share Index gained about 3%, buoyed by an 18% gain by resource shares. However, financials and industrials lost 8.5% while listed property shed 11%. The outflow of foreign funds totalled a net R11 billion.
The quarter also witnessed major rand weakness, with a loss of 22% against the euro and almost 16% against the dollar. In euro terms, local financial and industrial counters lost about 30% while some individual counters in areas such as banking and retailing lost more than half their value in hard currency terms.
Yet some banks and retailers staged a recovery as the new quarter opened.
Said Hansen: “High interest rates, ongoing food inflation and record fuel prices are making big inroads into the disposable income of consumers. Recent pressure on retail sectors dependent on discretionary spending was understandable and one fashion retailer lost 46% of its share value since May '07.
“But this very counter was able to bounce back at the beginning of the new quarter just as a massive petrol price hike took effect. This looks bizarre to the general public, but not if you remember the market's capacity to look ahead and appreciate the market's tendency to overdo things - shedding too much value toward the end of a slide and getting too frothy near the top.
“Value opportunities may well exist for prudent stock-pickers at this juncture. All indications at the start of the new quarter are that value-hunters have begun to re-enter the market, including offshore investors; suggesting that the sell-off was overdone and current levels of doom and gloom are not warranted.”
