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10 July 2015
Wednesday was a particularly rough day with Chinese markets falling sharply in response to weak commodity prices and South Africa’s mining index dropping in response. But Johan Strydom, Head of South African Equities at Sanlam Private Wealth, urges equity investors to hold their nerve and not overreact in the face of local and global volatility.
“Investing in equity markets is a long-term decision and investors should not be influenced by short-term sentiment swings. Markets go up and down over time and this is currently a down phase. At a time like this it is worth going back to basics and remembering that such pull backs can give investors an opportunity to buy, especially when taking a long-term view.”
He said Sanlam Private Wealth was of the opinion that if Greece does exit the eurozone, the move is already largely discounted in the markets. “In fact, an agreement between parties would in all likelihood, see markets reacting positively.”
The Chinese equity market is the bigger issue influencing investor sentiment. “The market in China has pulled back by 30% and trades now at a reasonable PE of 18. To put the correction in perspective, the A share market appreciated by 140% from July 2014 to June 2015. The market today is still 15% higher than at the beginning of the year. The Chinese market is still 80% higher than in June last year. This was not a surprise as we often see financial markets correcting after periods of exuberance.”
In light of this, the question is whether the fundamentals have changed? “We don’t think so as the correction is largely sentiment driven. Global interest rates, one of the biggest drivers of global equity markets, remain low and we expect the US to be extra cautious regarding raising rates.”
“So again, we iterate that a long-term view is essential and we urge investors to hang onto their equity position”