JSE upbeat as global stocks gain ground
Mixed reaction to optimism
July 22, 2009
By Ethel Hazelhurst
World stock markets continued to gain ground yesterday. After share prices in the east, excluding Japan, reached a nine-month high, the JSE's all share index touched an intraday high of 23 900 points. It closed at 23 858 - the highest level since September last year, and 31.6 percent above its low point on March 3.
Reuters reported the catalyst for the rally was a series of better-than-expected corporate earnings reports in the US.
While there are fears that equities may be outrunning economic realities, Old Mutual Investment Group South Africa (Omigsa) said investors had little choice, given low returns from cash and bonds.
"Internationally there is a wall of uninvested cash waiting to find a home, which will support equity markets in pullbacks," said Peter Brooke, head of Omigsa's macro strategy investments. And he pointed out that, in South Africa, effective real interest rates were negative, "with inflation at 8 percent and cash at 8.5 percent".
However George Glynos, the managing director of market analysts ETM, was sceptical.
"I don't buy into the optimism out there," he said and warned the fiscal stimulus packages and abnormally low interest rates worldwide were a "financial market stimulus rather than an economic stimulus".
He cautioned against expecting the rally to be sustainable.
Chris Hart, an economist at Investment Solutions, said he would be more confident when the all share index broke through the top of its recent range of 18 000 to 24 000.
But given expectations that the domestic economy would stop shrinking by the end of this year the market's performance was not out of line with the fundamentals, he said. "Investors are looking ahead nine to 12 months."
Hugo Nelson, the chief executive of Coronation Fund Managers, said the market was recovering from an overreaction to negative news. "It's not so much that the recent run-up reflects unreasonable optimism but rather that it is coming back from incredible pessimism."
|
|
