Domestic stocks remain resilient to US crunch

An analyst at Capital Securities says this is partly because revenue sources for these companies are not likely to be affected by the sub-prime mortgage crisis in the US.

However, Leutlwetse Tumelo points out that ripple effects of world markets are being felt by dual-listed companies. 'Stock prices of dual-listed companies have been on a decline on the local market, reflecting trends on their primary markets,' Tumelo says. 'We are likely to see a further weakening of share prices in dual- listed stocks. Domestic stocks are likely to continue being resilient to the fall on European markets.'

Stocks plummeted across the world on Monday and Tuesday amid fears of a global recession, with markets in Europe suffering their biggest one-day losses since the September 11 attacks on the United States.However, in the period under review, domestic counters on the local bourse strengthened, with the DCI surging 0.04 percentage points while a loss in dual listed Diamonex pulled down the FCI 0.01 percentage points on Tuesday. The impact could also affect local offshore investments held by various asset managers, as they are likely to see a drop in their value as a result of falling markets, Tumelo said. 

It could increase the price of bonds as investors seek to move away from equities, which have safer returns.Prior to the stocks taking a nosedive, investors had questioned whether a recent plan to boost the US economy would be enough to avert a full-blown recession.

The US government last week announced a financial stimulus plan, which would involve about $145bn in tax cuts to encourage spending.On Tuesday, Wall Street was closed for a holiday, while the UK's FTSE 100 ended 5.48 percent in the red, wiping 77bn ($149bn) off the value of its listed shares.Indexes in Paris and Frankfurt slumped by about 7 percent, while markets in Asia, India and South America also dropped.In Asia, the Hang Seng slumped 8,63 percent and the Nikkei plunged 5,65 percent to its lowest level since September 2005. The South African JSE also took a nosedive, following the aggressive sell-off on offshore markets as fears of a global economic slowdown plagued investors. In early trade, the all share index was 4.43 percent in the red, following Monday's fall of 4.6 percent.On Wednesday, global shares rebounded after the US Federal Reserve slashed interest rates in an attempt to pull the world's biggest economy away from a recession. The European stock indexes have however remained under pressure on concerns that the US Fed's biggest rate cut for 25 years will not ease economic woes.

On the BSE, both the DCI and FCI recorded minor losses yesterday with dual-listed counters such as Investec, Discovery, Aviva and A-Cap dragging down the foreign index while a Barclays retreat pulled down the DCI.

Some analysts have questioned whether the Fed's move goes far enough. Analysts predict world stock markets are likely to stay volatile for a number of weeks to come.