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Newsflash
Pessimism on world markets is rising quickly and plenty of bad news is being bandied about in the media, usually a
good sign that the bottom is not far away.
Market Comment
Having said that there was a 60% possibility the market correction was bottoming a week ago, one
acknowledges that the 40% possibility that it had NOT bottomed then is certainly winning, as the JSE All
Share Index continued its correction with gusto on Friday, although today looks better.
This has been a serious clean-out/correction and it is global, with very few shares spared.
The US S&P 500 Index is down around 5.3%, while the MSCI World Index is down a heftier 7.8% in dollar
terms, back at its November 2013 level. The weaker non-US currencies, relative to the dollar, have
aggravated the fall in this index.
The MSCI Emerging Markets Index is down 10% in dollars, while the JSE ALSI in dollar terms is down 13.5%
from the recent high.
At time of writing on Monday morning before the pickup, the All Share Index in rands is -10.4% or 5,426
points below its record high of 52,323, while the previously powerful Industrial Index is -9% and the strong
Financial Index is -9.4%.
As mentioned, very few shares are escaping, with the biggest share Billiton (9.9% of the ALSI) down some
23% from its record high in rand terms, back at 2008 prices, while Anglo American, now only the 6 th biggest
share at 5%, was on Friday down about 20% from its recent high and down a massive 55% from its record
high in 2008, trading now at 2006 prices!
Both Anglo and Billiton are bouncing today as the day progresses.
Even Woolies is down 19%, trading at November 2012 prices, i.e. almost two years ago!
Clearly some of the big rand hedges are hurting, apart from Billiton and Anglos. Richemont is down 22%, back
at 17-months ago levels, while Sasol is down 15% and the mighty SA Breweries is down 15%.
One of the previously great shares that actually went up during the 2008/9 crash, Shoprite, is down a
whopping 36% from its record high in late 2012, trading at the same price as around three years ago - down
19% so far in 2014.
The share is, however, still trading at 19 times earnings of the past 12 months (the PE ratio) and on a dividend
yield of 2.6%, is still below the 3.1% dividend yield of the JSE All Share Index, which by the way is almost its
highest dividend yield in 5 years (the ALSI dividend yield), partly because companies are paying more of their
profits in dividends.
One of the more extraordinary moves today is the 4.4% jump in the share price of Capitec, to yet another
record high, 28% above its low of two months ago during the African Bank issue.
The JSE’s ALSI PE ratio is now around 16 (trading at 16 times earnings of the past 12 months), still higher than
the 14.6 times average of the past 20 years, although arguably still affected on the high side by some of the
big rand hedges, like Naspers and SAB.
If the US stock market correction extends to 7% from the current 5.3%, then the JSE correction could extend
to, say 12.5% or so.
Pessimism on world markets is rising quickly and plenty of bad news is being bandied about in the media
(very little good news). It could reach a peak quite soon, which usually represents an excellent buying
opportunity; exactly when, no-one knows. It could even be there now.
However, if one wishes to up-weight one’s equity allocation, gradually buying into this downturn should
prove rewarding.