bumpy ride ahead on bad usa earnings news 
14 July 2008

Turbulence in domestic markets will continue this week as the US continues to churn more bad news on the earnings front, analysts said on Friday. “Trying to predict the market is like looking into a crystal ball,” said Darryl Owen, chief investment officer at BOE Private Clients’ Cape Town office.

The JSE all share index saw a small bounce during the course of last week, but was unable to recover from losses experienced in the previous week. However, resource shares recovered a little during the week since the previous week’s sell-off and were up 31% in the year to date.  Mpho Mojalefa, head of dealing at BJM Private Clients agreed that the turbulence would continue this week as market jitters around bad news from the US continued to filter into the local equity markets.

Owen said there were strong rumours in the US about hedge funds going out of business.  He said more bad news about earnings could be expected and more subprime write downs from the US financial sector next week. Mojalefa said the markets were nervous about the possibility of the US government ba ling out home financing groups Freddie Mac and Fannie Mae.

Sector rotation in local equities markets would continue as investors continued selling out of resources and put their money into the “value eroded” sectors such as financials, said Owen.
“If you have cash, spend it wisely,” he said, adding that investors should go for value in the shares that have been beaten down. He said not all was lost for the resources sector though. “We will find value in the shares that were oversold,” he said.

Resources shares that lost value in the past week were Anglo Platinum, down more than 5% to R116,40 in five days and Anglo American, down more than 7% in five days trading to close at R450 on Friday.  Mojalefa said that commodity prices would rise as a result of a weaker dollar.

Loyiso Sibali,  www.businessday.co.za