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Send  Share  RSS  Twitter  27 Jul 2010

INVESTMENT: Investors Remain Uncertain Of Long Term Equities Performance

 





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For the last three months, the FTSE/JSE All Share Index has delivered negative returns and this, along with the end of the World Cup festivities, seems to be seeping through into the psyche of South African investments. The July survey of the Sanlam Investment Management (SIM) Investor Confidence Index (ICI) showed local investors were far more confident and positive about the very short term (i.e. one – three months), but a growing pessimism was creeping through in the longer term numbers.

The survey is conducted among financial advisers and institutional investors, Candice Paine, head of retail at SIM, says that although both groups of respondents still expected positive returns for equities over the next 12 months, these expectations had declined from 7.66 percent in June to 6.11 percent in July. “Over one month, investors also saw an increased likelihood of the market delivering a positive return (probably on the back of the recent market sell off). But over three months, institutional investors were far more bearish on returns, expecting the JSE All Share Index to deliver a mere 0.07 percent for the period.”

This uncertainty or muted optimism among the group was also reflected in the valuations index. The index showed the proportion of investors who thought stock prices were too low, too high or just right. “Although there wasn’t a huge shift in the 50 percent of investors who thought the market valuations were neutral, there appeared to be some significant floor crossing from those who thought the market was too cheap to those who saw it as expensive. This may reflect the view that company earnings will be lower going forward and therefore previous stock valuations may have been a little too optimistic,” says Paine.

“Despite economic growth and company earnings being lower than previously anticipated by our respondents, there was no signal of any panic within the two groups of respondents. Investors remained optimistic about how far the market would bounce back on the day after a three percent drop. The expected percentage return a day after a three percent dip in the stock market rose to 0.96 percent in July from 0.52 percent in June. This sentiment was echoed in the Crash Confidence Index, which showed that there were more people who believed that there was a less than 10 percent chance of a 1929 style crash in the next six months. The number has increased from 58 percent last month to 71 percent in July,” says Paine.

Gerda van der Linde, executive director at the Institute for Behavioural Finance (IBF), an independent research organisation that conducts the survey, says, “Evidence of a slowdown in the United States economy, continuous concerns regarding debt in Europe, looming local strike action and the influence thereof on companies earnings, unemployment, recurring evidence of wide rooted corruption and other negative news continually confirm investors fears and fuel their chronic uncertainty.” She says investors may not fear another global recession, but it is the speed of recovery and volatility during recovery that seems to concern them.

 
 
 
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