You will not be surprised to learn that the “pain index’ that I calculate for JSE market from time to time is soaring way up towards record highs. This indicator tries to quantify the losses that could be suffered by a short term trader who managed to get the intra-day and day to day market moves utterly wrong. In the past ten trading days there have been seven with a range in the All Share index of more than about 500 points. The first day of August bared its teeth with a massive 986 point range. These are huge and savage moves, especially when superimposed on the absolute decline of almost 2500 points that has hurt even conservative investors. Fortunately, only the insanely unlucky punters will have suffered all of the pain but there have still been enough injuries for the stretcher parties to have been needed here and there. We have yet to see any local reports like those emanating from the US where funds have told their clients not to bother asking for their money back as there isn’t any left!
I think that neither these bouts of massive volatility nor the sharp declines are over. This is the reason for my reluctance to suggest that anyone commit large amounts of new money to the market at this time. Just be patient and wait for the better values that will certainly reappear in due course. Existing portfolios that have reasonably balanced holdings in well-managed dividend-paying companies can sit out this storm. Inevitably investors will see valuations fall for a while but probably not below where they were even two years ago. In my view there is little merit is trying to get too clever and sell off large chunks of the portfolio with the intention of buying it back when the bear has done his worst. Firstly, I note that perfect timing is probably impossible and secondly, capital gains tax and dealing costs are eager supporters of frequent trading strategies! If you are convinced that the market is going to plunge a long way and would like to benefit from that move, then there are derivative products on the JSE that allow you to place that bet. And betting is what it amounts to.
While watching a program about China’s preparations for next year’s Olympic Games I began to wonder why had not yet seen any speculation about will happen in that country when it is over. Down here in SA, we have already expended acres of newsprint and gales of hot air on fretting about post-2010. Might the global slowdown begin when the flame goes out in Beijing next year?
Local slowdown, however, is not evident as the reporting season hots up and double-digit earnings growth rates are being trumpeted by all sectors. Construction company growth rates are even threatening to get into treble figures!
I do not expect to be able to send you Tidemarks for the next three weeks. Firstly, in unison with most of the nation, I have decided that the Women’s Day public holiday next Thursday would be discriminatory unless accompanied by a Man’s Day on Friday. I will be using that long weekend to carry out an experiment into the travelling qualities of Castle lager by transporting several cases to the Umfolozi. This, however, will not be the end of my self-indulgence. Immediately thereafter, I shall be off to Namaqualand. With luck, the spring flowers will be in bloom and shares will be far from my mind. Please keep good care of the markets during my absence and ensure that there will be something for me to write about when I return.
Keep safe.
James Greener
3rd August 2007
