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Rapid rebound on JSE a sign to ‘tread carefully’

‘Many are ready to buy into the optimistic narrative …’ – analyst.

South Africa’s benchmark index has staged a spectacular snap-back from its March nadir as global signs the coronavirus pandemic may be being brought under control encourage investors to return to riskier assets.

But the gains have been accompanied by record volatility, underscoring the need for caution. A measure of the index’s 30-day volatility has set a fresh record high of 70.54, with stock prices swinging by their wildest margins ever.

Since spiralling into a bear market last month, the FTSE/JSE Africa All Share Index has surged 24% from its March 19th low, a technical sign that the benchmark has already entered a bull market.

“Many are ready to buy into the optimistic narrative and discount the fact that we still don’t have a full understanding of how much the virus has spread or how it behaves,” said Lulama Qongqo, an analyst at Mergence Investment Managers in Cape Town. “I trust in the scientists when they say that it will take 12 to 18 months for us to have a vaccine for distribution. Until then, people, companies, and governments will likely need to tread carefully.”

Curro Holdings Ltd. (+84%), Royal Bafokeng Platinum Ltd. (+82%), Anglo American Platinum Ltd. (+80%) and Sasol Ltd. (+75%)

The South African benchmark index was 1.3% lower as of 1:17 p.m. in Johannesburg, taking this year’s decline to 18%.

© 2020 Bloomberg

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The bad socio-economic news, locally and globally, has hardly started to flow. There are a multitude of second order effects that haven’t even been contemplated let alone factored into future earnings estimates. I’m staying in cash for now and I’m happy to wait until these markets have established a solid floor before re-investing.

20% up or down on a daily basis to describe bull or bear markets doesn’t make sense with volatility. We need a better measure, like the index crossing the 252-day (1 year) moving average.

End of comments.

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