It is getting fairly nasty. July is just four days old and already the All Share has shed around 6%. The collapse has been pretty evenly spread throughout the market sectors with perhaps some of the resource shares bleeding just a bit more than the rest. When measured in local currencies, the JSE has declined further than most other markets in both the developed and the emerging markets. The astonishing side to the story, however, is that the rand has in fact strengthened against all the major currencies this week which might indicate that if there is any appreciable amount of foreign selling then they are not taking their money out at the same time.
We bears are also measuring the damage against the all time highs set by the indices in May. From there the fall of the overall market is about 15%, but from that peak it is the financial sector that has suffered a disproportionate amount of the selling. The major banking groups will start to report their half-year results from only next month, but it certainly appears as if many investors share my fear that we could be treated to a number unsettling but yet unsurprising tales of how folk are unable to cope with servicing their loans and are either rescheduling or are giving their car keys back to the bank. Vehicle sales figures are sharply down and second-hand car lot areas are sharply up.
I have seen a number of schedules of the fierce rise this year in the dollar prices of most commodities except, oddly, pork bellies! Add to those increases the more than 10% weakness of the rand versus the US dollar since Christmas and it is obvious that there must be a very significant adjustment happening in the spending patterns here on the southern tip. Spare ribs in place of turkey then?
No one is immune and with the second month in a row of state expenditure being greater than income it seems likely that the government borrowing program may need to be beefed up a tad if all our civil servants and MPs are not to go hungry or miss out on a trip to the Olympics. My suggestion that we might dispose of at least a quarter of them and feel no difference in service levels has not yet received a reply. More unfortunate encouragement for Governor Mboweni came from the European central bank which raised their price of money by a quarter of a percent this week. Interest rates at both end of the yield curve are under pressure to move higher. Neither of these developments is good for company earnings and in turn for share prices.
A few exceptions can always be found, however. For example if you are a manufacturer of “corporate merchandise’ – meaning hats, shirts, bags and pens carrying a logo – then the firm that has the monopoly in pumping water from Lesotho to this country would like to hear from you. Presumably without their name being constantly in the public eye, we might all be inclined to do without the stuff. The water that is.
I have been uneasy all day. It is not the winner of tomorrow’s big race in Durban which will, I am sure, be won by a horse that is troubling me. Neither is it the possibility of drugs being discovered in the duffle bag of a cyclist in France, but rather the terrifying matter of the tri-nations meeting against the All Blacks. It could be a bad start to the weekend. Go ‘bokke.
James Greener
4th July 2008
