Jolly right now says ‘fear index’ as Absa warns about getting smug

‘Tis the season to be jolly … even South Africa’s investment volatility index the SAVI says so. But watch out, savers and investors, because some surprises just might be in store.

The seasonal word to the wise comes from Absa Investments, the Absa banking group’s asset management and investment arm.

A sense of investor safety has been setting in for some months, but best not get too smug about it, cautions Craig Pheiffer, General Manager, Investments, at Absa Investments.

The SAVI is modelled on the VIX index on the Chicago Board of Options Exchange. Both indices attempt to portray one of the most common market characteristics, fear.

Pheiffer adds: “The investment industry hasn’t yet found a barometer for greed, but the daily SAVI index paints a picture of future equity market risk.

“A low index reading indicates low volatility, complacency and a low level of fear. Higher volatility points to greater market fear and the potential for big market moves in either direction.”

The SAVI was introduced in 2007 and accurately tracked mounting fear and extreme volatility at the height of the global recession.

Fears have since subsided. This is good, but investors should not assume reassuring index readings are a guarantee of tranquillity and a continuation of benign market conditions.

Pheiffer points out: “Recent market gains have boosted confidence in the future path of the market and the SAVI has fallen to well below its all-time mean, (but) when everything appears calm and rosy, perhaps that’s the time we should exercise maximum caution.”