On 29 July I wrote a Blog “JSE All Share up 37% in 13 months”. I ended with these words: “At some stage the JSE will correct, but with so many investors waiting for just such an event, the correction is likely to be small. When? If I knew that I would not be working now would I?”. Little did I know that the correction would start the very next day.
The JSE All Share Index has now corrected just over 5%, only the third such correction in more than 12 months. The only other corrections of 5% or more were a 6.5% correction in November/December and a 5% correction in January. Suddenly investors are getting a little jittery. Clients phone wanting to know what the reasons are and if they must get out.
There seems to be no specific reason for the decline except that the markets have run into expensive territory plus concerns about Chinese GDP growth. Disappointing Chinese economic growth is also my biggest concern, but on Tuesday the PMI number surprisingly picked up again. The Stochastic indicator is now in oversold territory and any break above the 20 level will be positive. (You can learn more about technical analysis as well as fundamental share analysis if you register for free as an iView client on www.sanlamitrade.co.za).
The other factors I mentioned in that Blog still remains:
- No alternative investments. There are nothing that can really compete with the stockmarket currently. International Bonds are far from trading at normal yields as a rsult of QE. Property is still quite flat.
- Huge global liquidity seeking yield. US tapering is not the same as tightening, they are only pumping less money into the system.
- Foreign investment. With yields in the US and Europe so low emerging markets are still attracting foreign flows.
- Many of our biggest listed companies on the JSE earn most of their profits abroad.
Corrections in a bull market are healthy and to be expected. The fact that we had so few corrections is unexpected. With huge liquidity waiting in the wings to invest in equities I don’t expect the correction to last for long. There are many investors who took profits or with new money that will soon grab the opportunity to enter the market.
Sanlam iTrade Online.