Panicked investors stampede in case bulls do run
July 31, 2009
Usually when investors panic, they stampede out of the market. Now investors' panic is making them stampede in, says Glenn Silverman, the global chief investment officer at Investment Solutions. "They fear losing out on the possible start of a new bull trend," he says.
Their belief in the market's recovery may be as irrational as their earlier irrational pessimism, he says. And he warns that the recent global equity market rally, which started in early March, "is simply a rally within a longer-term bear market and is likely to be unsustainable".
Since March 9 when global equity markets bottomed, stock markets have made remarkable recoveries.
"The JSE has rallied over 30 percent in rand terms, but a far more impressive 81 percent in US dollars. Over the same period, the Standard & Poor's 500 has notched up gains of 45 percent, while China is up 62 percent in their local currency," he says.
"Markets may well still grind higher over the next few weeks, but investors should note that markets are approaching an over-bought level. And the historically dangerous month of October is only nine weeks away."
October, of course, saw the 1929 stock market crash, which went on to trigger the Great Depression. More recently - in 1987 and 1997 - it saw some blood letting on stock markets - though these had little impact on the real economy.
Plexus group chairman Prieur du Plessis, is more upbeat. He says, despite some risks, equities are the place to be.
"South African equities are likely to uphold their stronger relative performance in US dollar terms towards the end of the year and into next year, given the improved outlook for commodities," he said.
And he predicts that resource-related and domestic economic cyclical equities will benefit from improved local currency strength and are likely to outperform.
Low-level union war
The agreement that halted strikes in the health care sector has triggered what amounts to a low-level war between public sector unions. The deal reached in the public sector bargaining council (PSBC) received approval only from unions affiliated to Cosatu, comprising roughly 60 percent of total union membership in the sector.
The other 40 percent are part of the Independent Labour Caucus (ILC), headed by one of the country's "big five" unions, the Public Service Association (PSA). They refuse to sign, but, because of the "simple majority" constitution of the bargaining council, they are bound by the agreement that covers occupation specific dispensation (OSD) pay and conditions for professionals and "non-OSD" workers.
However, a probable majority of the roughly 400 000 non-OSD workers, such as clerks, orderlies, hospital porters and cleaners, are members of ILC unions. The Cosatu-affiliated SA Democratic Teachers' Union (Sadtu) has no non-OSD members, but has thrown its more than 200 000 votes in favour of the non-OSD section as well.
"It's a sellout. Sadtu and the other Cosatu unions have become sweetheart unions," fumes Ezra Mfingwana, the president of the National Union of Public Service and Allied Workers (Nupsaw) that organises more than 20 000 non-OSD workers. Like many of the ILC unionists he maintains that the deal was the result of political pressure from the government.
"Government is the employer and the Cosatu unions are part of government. It's a travesty," he says.
PSA deputy general manager Manie de Clerq would not be drawn on the political issue. However, he admits: "It is true that some non-OSD staff will have to wait between five and eight years before benefiting from this agreement." PSA officials, he says, "could never get a mandate from members to sign off on anything like that".
Several of the ILC unions now plan to have the agreement reviewed at the PSBC. "In the meantime, we will be recruiting more members because of what has happened," a Nupsaw organiser promised.
Beer betrayal
These days it does increasingly seem that you can't trust anyone to stick to a market-share agreement or a cross-shareholding arrangement. Either one or other party is queuing up at the door of the competition authorities in the hope of being the lucky one to secure a "corporate leniency" deal or, as is the case with Diageo, they just ignore the arrangement and go about their business as if they were just an ordinary old competitor.
Ahead of the London court action or arbitration proceedings, it is impossible to know what motivated Diageo subsidiary East African Breweries Limited (EABL) to decide it wanted to cancel its arrangement with SABMiller and strike up a relationship with Serengeti Breweries. But one must assume the latter's rapid growth in the Tanzanian market is a major attraction.
Although Serengeti Lager has a considerably smaller share of the Tanzanian market than its rival Tanzania Breweries, which is 53 percent controlled by SABMiller, it has recently expanded quite rapidly. Its market share has increased to 17 percent from 7 percent in 2002.
In addition to Serengeti Breweries, EABL has scope to move into export markets not only in Africa but also in Europe.
According to reports in Dar es Salaam, asked to comment on the pending legal battle, an EABL spokesman said the group "prefers to work in partnership with proven local management teams that have already proven successful - evidenced for example by the growth that Serengeti Breweries has seen already."
A spokeswoman for Serengeti Breweries said a deal with Diageo's EABL was expected to benefit Tanzanians through increased employment opportunities.
The EABL/Tanzania Breweries agreement was hammered together after a five-year beer war. If the agreement is undone, tipplers in both Kenya and Tanzania should expect to see cheaper beer prices.
Edited by Peter DeIonno. With contributions from Ethel Hazelhurst, Terry Bell and Ann Crotty
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