Full blown panic erupted in global stock markets yesterday and there are a number of reasons that could have finally attributed to this long awaited correction: poor data out of China, the devaluation of the yuan, further problems in Greece and the uncertainty of the next US Fed Rate hike.
The drop in commodities along with this risk aversion caused the rand to drop to R14.0672 against the dollar at one point yesterday. The JSE all share index ended 2.85% weaker at 47,631.19 points.
Oil plunged towards $40 a barrel, European stocks closed down 5.4% and the Shanghai composite index slide 8.5% (as I write its trading down another 6% this morning so far!)
Greece received its first 13 billion euros from its new bailout package on Thursday, allowing it to pay its debt of 3.3 billion euros to the European Central Bank and avoid a messy default. Greece is however set for more turbulent times as Prime Minister Alexis Tsipras resigned on Thursday with new elections to be held on 20 September.
Worsening economic data and signs of capital outflows are undermining government attempts to shore up the Chinese stock market. While China said over the weekend they will allow pension funds to buy shares for the first time, a speculated cut in bank reserve ratios failed to materialize.
Today is “Turnaround Tuesday”, so we should see a bounce today in most markets, however the market activity for the rest of the week will be more interesting to watch.
Specialist Comment:
Investing should be a long term activity and therefore one shouldn’t give too much attention to shorter term events, especially if you are investing through a recurring premium.
Market dips will help clients with recurring investments to purchase more units than usual and should therefore add a boost to the investment if a recovery takes place over the longer term.
Lump sum investments can be phased in to reduce volatility or look to investment at a lower risk profile than usual for the shorter term and increase risk profile once you feel the risk of downside volatility has reduced.
Lump sum investors can also employ portfolio insurance if risk appetite has decreased, e.g. using funds or products which provide downside protection.
Charting the Market Meltdown:
Regards,
Tersia van Nieuwenhuizen
Independent Contractor to Discovery Life
Direct: +27 21 975 3199
Fax: +27 21 975 3995
Email: tersiav@ic.discovery.co.za
URL: www.discovery.co.za
An authorised financial services provider - FSP No. 18147
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