Markets jolted by fears over global recovery
EDWARD WEST
STOCK markets globally dived yesterday as investors started doubting whether the global recovery would gain traction.
The JSE tracked emerging and developed market bourses, with the all share — led by falling commodity prices — closing 2,98% lower.
The MSCI world index of 23 developed countries, which has risen 52% this year, slumped up to 2,6% in New York in the early evening while the Standard & Poor's 500 index slid 2,1%. China's Shanghai composite index plummeted 5,8% the most in nine months.
The price of Brent crude shed 2,8% to 69,48 a barrel, platinum dropped 3,2% to 1220/oz and copper lost 2,8% to 275,70/lb in London. Gold lost 1,8% to 931,30/oz in New York yesterday evening.
US bonds and the dollar rose against a basket of currencies as investors sought safer assets.
A weaker than expected report from the Reuters/University of Michigan Survey of Consumers ignited cross-market selling late on Friday, which continued yesterday. It's a continuation from Friday, an analyst at Barclays Capital, Gayle Berry said. "This is the trend we've been seeing in recent months a week or so of very strong gains and then a pullback."
Japan became the third Group of Seven country after Germany and France to exit recession, but this failed to ease sliding investor sentiment as growth was lower than expected. A gauge of manufacturing activity in New York state, which moved into positive territory this month, suggesting growth in the sector for the first time since April last year, also failed to generate positive sentiment.
Sasfin Securities CE David Shapiro said there were many reasons for the falling markets, but he had expected a pull-back as share prices even some SA stocks had started to look high, relative to earnings. Yesterday's drop was more than he had expected.
It's not going to be too severe. Nobody wants to lose their place in the market, and returns on cash are not great, he said.
Imara SP Reid trader Colin McCulloch said it's one of those days where they (overseas investors) are selling emerging markets. Stock markets rose well during the past few weeks, and prices had begun to look overvalued, but the market may be steadier tomorrow, he said.
Stanlib economist Kevin Lings said the US was at the crucial third stage of recovery consumers are supposed to re-engage with the economy by spending more and taking on credit, rather than cutting debt and growing savings.
This hasn't happened yet the risks are still substantial, Lings said. Indications were the recovery in consumer spending would be slow. This would make emerging markets with strong domestic consumption increasingly interesting investments, he said.
The first two stages of recovery had been reached. These were financial stability in markets and banks and lower inventories globally. These two stages had given rise to the green shoots notions of recovery, he said.
There is now a realisation that coming out of a recession is one thing, but building a recovery is another, Seven Investment Management director Urquhart Stewart said.
We are now down to how companies are going to grow. The growth we have seen out of Japan as well as Europe looks like it has been primarily based on government stimulation ... The question is, is this sustainable?
In London the FTSE 100 fell 1,7% while in France the CAC-40 shed 2,4%.
Emerging market stocks fell in line with lower commodity prices and on concern economic growth in China may have peaked .
A creeping rise in risk aversion could provide the dollar with a temporary boost, Citi said in a note to clients.
A more decisive market correction could be triggered by a resumption of flows into the market and/or evidence that China lacks control over its overheating economy and its frothy financial markets.
On the JSE, the world's biggest gold miner dropped 3,8% to R294,25, while Goldfields, the world's second- biggest gold miner, fell 3,3% to R95,75. Platinum's stock shed 3% to R38,30.
Lings said the next stage in the US economic recovery may become evident only in three to six months through statistics such as improving consumer confidence, signs of lower unemployment and a growth in credit lending.
He said many economic factors still needed to come into play before a full-blown economic recovery became evident in the US. With Reuters, Bloomberg |