Ask the Pro’s
Interview with Quentin Maritz
27 Mar 08 Monthly
Bubble, bubble, toil and trouble
The bad news continues. Global
economic growth has been downgraded,
the US financial sector has suffered further
write-offs and markets have witnessed
the demise of the once formidable Bear
Sterns, an important player in the US
financial markets. Despite the best efforts
of the Federal Reserve, whose latest steps
included further reducing interest rates
and making funds available to primary
dealers, the US financial system continues
to be buffeted by credit and liquidity woes.
Confidence remains fragile and risk aversion
is the dominating strategy.
Further measures in the form of lower
interest rates and fiscal spending are
expected to stimulate the US economy and
calm the financial markets in due course.
We would however be naïve to think that
there are no potential financial market
shocks (à la Bear Sterns) still lurking in
the market and which could cause further
volatility in the next few months.
While heightened risk aversion and
negative sentiment could easily persist
for some time, we maintain our view that
global equity markets are cheap, and we
would be looking for buying and not selling
opportunities at present.
Raised levels of global risk aversion
have resulted in a weak local currency
(foreigners sell our stocks and bonds which
puts pressure on the rand). In addition, a
worse than expected inflation experience
has contributed to higher bond yields and
this in turn has detracted from interest rate
sensitive areas of the local equity market.
As long as bond yields remain at c