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Johannesburg – Investors in the South African market, who already saw the value of their investments drop 10% during the past week, have to prepare themselves for more shocks.
The JSE’s all-share index looks set to lose another 10% if global markets don’t bounce back in the coming days.
Hannes Smuts, portfolio manager at PSG Konsult, says it is uncertain where the market will bottom out.
He says there was a shift in investment sentiment and that fear currently has the upper hand, which means that more losses are ahead.
The all-share index dropped 1 000 points (3.6%) to 26 515 on Friday. The index lost 2 000 points over the past week.
Debt problems in Greece, which could spread to other European countries, have sparked fears that the world is facing another financial crisis.
The news from China, a key market for South African commodities, is downbeat. China is already in a bear market, with shares falling more than 20%.
Analysts have been warning for some time that the local market was ready for a correction.
Sake24’s technical analyst Frans de Klerk said low trading volume and volatility have been pointing to a loss of momentum in the markets.
The local market also looks expensive, with a price earnings ratio of 18 times. The market’s average P/E over the past fifty years was 12.
The Greek crisis provided the catalyst for a correction.
The trading volatility and volume seen on the JSE this week have reached levels last seen during the financial crisis in 2008.
If the market doesn’t recover convincingly more problems lie ahead, says De Klerk.
The all-share index broke through the key support level of 27 600 on Thursday and dropped another 1 000 points on Friday lower. If the index doesn’t reach 27 000 soon, the level of 25 000 can be tested soon.
Investors looking for bargains on the market will probably wait to see how long and serious the problems in the Europe will be and whether company earnings in South Africa will maintain momentum.
- Sake24.com
For business news in Afrikaans, go to Sake24.com.