JSE regains strength

2008-09-30 00:00

Facing a challenging market day following a black Monday on Wall Street brought about by the rejection of a possible bail-out plan by the U.S. House of Representatives, local investors saw the JSE move 2,3% higher in late afternoon trade yesterday.

The JSE opened lower yesterday, but recovered later in the day, largely on the back of a rally by financials and industrials.

The rand was trading half a percent weaker to the U.S. dollar while the platinum price fell by more than seven percent by late yesterday afternoon.

Markets went into panic after the House rejected a fragile compromise plan to spend up to $700 billion to revive a financial sector weakened by the U.S. housing meltdown. This led to the JSE suffering a bloodbath on Monday as the JSE all-share index closed 5,76% lower.

“What will happen now? Basically any depositor in a U.S. bank can no longer be sure that his deposits are entirely safe. Thus, in the interests of prudence, they will start to withdraw ‘just in case’. Lots of people doing that together cause a bank crisis,” said Warwick Lucas, equities analyst at Imara SP Reid. Lucas does not foresee a similar situation in SA.

He has confidence in the SA Reserve Bank, saying that the bank has proved itself in the past —- particularly by supporting BoE when it faced a crisis a couple of years ago. “They came to understand that fear is a terribly powerful force in relation to banks, because the number one requirement for a working banking system is confidence.”

As far as the SA economy is concerned, the demand for commodities remains intact in emerging economies. The outlook for manufactured goods is murkier, and may also depend on currency gyrations, said Lucas.

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