It’s too late to panic … worst may be over, says Absa

If recent share market declines took you by surprise and you’ve been too shocked to react then it’s probably best to stay in shock rather than limp belatedly for the exits. The worst could be over and it’s now too late to panic.

That’s the bitter-sweet but generally upbeat message from market-watchers at Absa Asset Management Private Clients after total returns on the JSE All Share Index declined by 5.70% in June. What’s more, the All Bond Index fell 1.52% for the month, with the Inflation-Linked Bond Index down 5.47%.

The Top 40 took a big hit, down 6.7% for June, but damage was minimal on a three-month view – down just 0.2%. Some sub-sectors faced severe pressure. Gold mining shares lost 19.75% in June and were 33.5% down over the second quarter.

Some sectors stayed positive. June’s top performers were fixed line telecoms (up 11.4%) and Pharmaceuticals and Biotechnology (+6.8%).

Among the sub-sectors, a former favourite like General Retailers fell 3.54% for the month and dipped 3% for the quarter.

Christopher Gilmour, a market analyst at Absa Asset Management Private Clients, notes: “If you’re going to panic, do it early. If you missed the panic, there’s no point doing it now.

“Some June figures look grim, but the correction brings the market back to reality. There’s a good case for sticking around to enjoy market gains driven by improved economic fundamentals rather than the unrealistic expectation that artificial stimulus will continue forever.”

Gilmour says much of the recent weakness was caused by international market reaction to statements by the US Federal Reserve that it was preparing to taper off quantitative easing as the US economy gained strength.

He adds: “International tantrums at the prospect of gradual tapering off of quantitative easing should not detract attention from the underlying positives.

“The US remains by far the world’s largest economy. Indications that US jobless numbers are coming down and growth numbers are going up mean the fundamentals are better.

“South African assets are among the most readily tradable across emerging markets so a sudden switch in sentiment hit our market and the rand harder than most. The coming strike season creates potential for more short-term volatility, but recovery from these levels should not be discounted.”

Absa Asset Management Private Clients advises high net worth individuals and its overall message to investors is guardedly positive.

“A better second half is certainly possible,” says Gilmour. “Lower Chinese growth is a concern and poor EU growth is bad for us as Europe is an important trading partner.

“South Africans dependent on fixed incomes remain under pressure as interest rates will probably remain low, though the prospect of a further cut has receded.

“Equities offer the best chance of inflation-beating returns. The good news after the June sell-off is that astute stock-pickers should be able to identify value and pursue renewed growth.”