Swing Trade

Usually when investors panic, they stampede out of the market. Now investors’ panic is making them stampede in, says Glenn Silverman, the global chief investment officer at Investment Solutions. “They fear losing out on the possible start of a new bull trend,” he says.

Their belief in the market’s recovery may be as irrational as their earlier irrational pessimism, he says. And he warns that the recent global equity market rally, which started in early March, “is simply a rally within a longer-term bear market and is likely to be unsustainable”.

Since March 9 when global equity markets bottomed, stock markets have made remarkable recoveries.

“The JSE has rallied over 30 percent in rand terms, but a far more impressive 81 percent in US dollars. Over the same period, the Standard & Poor’s 500 has notched up gains of 45 percent, while China is up 62 percent in their local currency,” he says.

“Markets may well still grind higher over the next few weeks, but investors should note that markets are approaching an over-bought level. And the historically dangerous month of October is only nine weeks away.”

October, of course, saw the 1929 stock market crash, which went on to trigger the Great Depression. More recently – in 1987 and 1997 – it saw some blood letting on stock markets – though these had little impact on the real economy.

Plexus group chairman Prieur du Plessis, is more upbeat. He says, despite some risks, equities are the place to be.

“South African equities are likely to uphold their stronger relative performance in US dollar terms towards the end of the year and into next year, given the improved outlook for commodities,” he said.

And he predicts that resource-related and domestic economic cyclical equities will benefit from improved local currency strength and are likely to outperform.

Source: busrep.co.za