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Johannesburg - The JSE could fall sharply in the weeks to come because company profits simply do not justify its recent ascent.
According to analysts, the performance of the JSE's all-share index over the past year has produced a 'W' formation, which could indicate that the index is either going to rise sharply or tumble - and the analysts opt for the latter.
"I anticipate it will fall," says Rudi van der Merwe, head of investments at Standard Equity Advisory Services. "The market has risen on sentiment.?"
The all-share index peaked at a record of 33 232.89 points on May 22 last year, and then dropped 46.4% to 17 814.42 on November 20.
The index then rose 28.6% again to the beginning of January, after which it is fell back 20% up to the beginning of March. The last leg of the W was formed during March, when the index put on more than 30%.
Jan van Niekerk, head of investments at Citadel, says the previous 20% decline between January and March did not make the world any gloomier than it already was.
And the recent 30% rise did not improve matters much either, he adds.
The turbulence in the local stock market is not unique, and movements in the all-share index are strongly linked to those of major global markets.
Among the reasons for the volatility is markets? greater liquidity.
"There's a great deal of cash in money markets and portfolio funds looking for a home," explains Vega Capital analyst Francois du Plessis. "I think it was premature [of the markets to rise]."
Van der Merwe agrees and points out that the run in the markets was not based on profits.
"You will have to dig deep to find earnings growth," he remarks. "Production and hiring, which essential to fuel earnings growth, are on the decline."
According to Du Plessis, economic realities are coming home to investors - who are now recognising what is happening on the market.
The JSE's all-share index has weakened almost 7% since end-May. "A time of weakness lies ahead," predicts Van Niekerk.
"There are those who reckon that the index could go down to 18 000," declares Edwin Smit, a trader at EDI.
Van der Merwe reckons our economic problems are only just starting.
On Monday the all-share index lost 2.02%, closing at 21 941.34.
Meanwhile, Bloomberg reports that the Russian Micex index on Monday officially became the first bourse to slip into a bear market since March, having shed more than 20% since the beginning of June.
- Sake24.com
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