It has been a very difficult few weeks in the stock market, with worldwide markets experiencing a correction. One of the scariest things is the uncertainty of when it will end and finally give markets the opportunity to recover.
A correction has been due as the stock market has risen for 10 years since the crash of 2008. The American markets especially have seen unbelievable growth coming mainly from tech stocks, and several market participants have been warning about an impending ‘tech bubble’ forming. This became a reality and had been going on for a while when the wider sell-off started a few months ago.
Earlier in 2018, while the American markets were surging due mainly to the aforementioned tech stocks, our local market had to deal with problems specific to South Africa. We therefore did not partake in this growth, and our market was being sold off. The problem we now face is that this world-wide correction is, and will continue to, affect us. We are now sharing in the downside without having shared in the upside.
In the graph below, we look at how much the market was sold off during the 2008 crash. The crash of 2008 lasted for about five months, with the market being sold off by just over 46% (measured from the highest point to the lowest point during the period). The current market sell-off has been going for two months with just under 17% of value having been lost.
JSE All Share performance 2006 to October 2018
There is of course no way of knowing how long this will last. Hopefully the trade wars between the US and China will come to an end and create some resemblance of global economic stability. It is not all bad news, as with this type of correction there will be plenty of great buying opportunities.
Stephan is a portfolio manager and full-time trader. He developed his passion for the markets while working in the Stockbroking division of Standard Bank and is especially passionate about CFD trading. Stephan studied at the University of Stellenbosch and completed a BComm Honours (Business Management) with a focus in Portfolio Management and Bonds. He has also passed the JSE Equity Trader’s Exam, RE5 (Representative) and RE1 (Key individual) Exams as well as the Registered Persons Exams (RPEs) in order to give advice on equities.