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Johannesburg - After closing 2008 at an index level
of 43.02, the South African Volatility Index (Savi) is now at a less fearful
29.03. However, there have been some tentative signs of a fear premium since
June 2, when the index was 26.36, as it went on to reach 30 by June 24.
It is now bouncing sideways in a fairly tight range and looks undecided - a
clear reflection of the volatility still being seen in global markets. It had
struck a worst this year of 47.69 on January 23, but the trend then started
heading towards more comfortable terrain.
The index had risen to a new high closing level of 57.97 on October 27 2008
in the midst of the global crisis, and then underwent a volatile spell until
the lower trend set in.
The higher the volatility index, the greater the level of fear or
uncertainty in the market, and the lower the index, the more complacency there
is in the market.
And 2008 certainly showed high levels of fear as this index worsened from a
trough of 20.63 on May 19 2008 to the peak of 57.97 on October 27 - reflecting
a 181% turnaround in fear levels. The index had started 2008 at 26.88 and ended
it at 43.02, a worsening in the fear stakes of 60%.
It started 2009 at 43.02, proceeding to peak on January 23.
The credit crisis led to the heightened levels of fear between September
and October, a period during which the index went from 27.62 to 52.14 at the
end of October - a rise of 89%.
The Savi is based on emerging market equities and is thus generally
expected to be more volatile than the Chicago Board of Options Exchange's
volatility index - the Vix. This was not the case last year as the developed
world struggled under the weight of the credit squeeze.
The developed world's fear gauge struck 18.810 on August 22 last year and
then the party ended in dramatic fashion as it proceeded to increase by a
whopping 326% to peak at 80.060 on October 27.
It too, though, has been coming off and was last at 27.95, but again, is
also looking a bit more volatile after striking the year's low of 25.35 on June
29.
Analysts have said that the difference between these two indices can
reflect a "fear premium" between the first and emerging worlds, but the events
of last year did appear to reverse this premium in favour of a market like
South Africa.
The Savi is gained from Top 40 option prices and measures the expected level
of volatility in the local equity market over an upcoming 90-day period.
- I-Net Bridge