Global mar­kets look at­trac­tive

From a risk point of view it makes sense to di­ver­sify

Finweek English Edition - - Focus on offshore investments -

SOUTH AFRICAN re­tail in­vestors have turned bullish on the out­look for off­shore funds and all in­di­ca­tions are that they will again ben­e­fit hand­somely on the back of last year’s gains.

Wel­com­ing the stepped-up re­tail in­ter­est in in­vest­ing off­shore, As­so­ci­a­tion of Col­lec­tive In­vest­ments CE Di Turpin says in­vestors may be tak­ing the view that off­shore mar­kets of­fer higher growth op­por­tu­ni­ties af­ter three years of ex­cep­tional growth from the JSE.

“They could also be tak­ing a view on the rand – that it may weaken in the months ahead given the trade deficit – and that now is an ideal time to in­vest off­shore. Mar­ket an­a­lysts, how­ever, seem di­vided on whether the cur­rency will weaken or strengthen this year.

“Of course, from a mar­ket-risk point of view, it makes sense for in­vestors to di­ver­sify off­shore, gain­ing ac­cess to a spread of mar­kets and sec­tors, aside from any short-term lo­cal mar­ket or cur­rency con­sid­er­a­tions.”

The in­flows into unit trusts for 2006 at R6,9bn were the sec­ond-best in the eightyear his­tory of for­eign-reg­is­tered funds in SA. Only the in­flows in 2000 of R8,5bn beat this at a time when there was huge in­ter­est in in­vest­ing off­shore.

Last year was un­doubt­edly a bumper year for global mar­kets and the JSE. The FTSE World In­dex gained 20% in US dol­lar terms against a back­ground of strong liq­uid­ity, ro­bust cor­po­rate earn­ings and a wave of merger and ac­qui­si­tion ac­tiv­ity. The gains came in spite of un­cer­tainty about US in­ter­est rates, higher oil prices and a mid-year scare over in­fla­tion and growth, which sparked a brief but hefty cor­rec­tion in stock prices.

Look­ing at the var­i­ous in­dices, the Dow Jones In­dus­trial Av­er­age was up 16,6% for 2006 af­ter record­ing sev­eral highs in re­cent months, the S&P 500 rose 14%, and the Nas­daq Com­pos­ite was up 9,9%. In Europe, the FTSE 300 rose 16,3%, with Spain hav­ing been the bright­est star – the Madrid SE In­dex rose 35,1% in lo­cal cur­rency terms and 51,6% in US dol­lar terms. In Ja­pan, the Nikkei 225 Av­er­age man­aged only a mod­est 6,9%.

The Hang Seng in­dex in Hong Kong jumped 34%, while Syd­ney and Taipei both gained more than 20%. Rus­sia was also up with the top global gain­ers, ris­ing nearly 60%, while Brazil’s Bovesta climbed 32,9% and In­dia’s Sen­sex 46,7%.

In­di­ca­tions are that 2007 will be an­other good year. The World Bank be­lieves de­vel­oped economies will grow at around 2,4% this year and de­vel­op­ing economies at 6,4%. UBS, JP Morgan Chase and Credit Suisse Group pre­dict, mean­while, that the MSCI emerg­ing mar­kets stock mar­ket in­dex will climb as much as 15%.

Mar­kets on the high side in­clude the US, Ja­pan, Spain, Rus­sia, China, In­dia, In­done­sia, Malaysia, Colom­bia and SA.

Fairly priced, how­ever, are the UK, Ger­many, France, South Korea, Hong Kong, Sin­ga­pore, Tai­wan, Thai­land and Brazil.

Look­ing at se­lect coun­try or re­gional sit­u­a­tions, cor­po­rate prof­its growth in the US may slow marginally, but it’s un­likely that mar­kets will plum­met. Bri­tain will prob­a­bly chug along at about 2,5% real eco­nomic growth and Lon­don will con­tinue to ben­e­fit hand­somely from world fi­nan­cial mar­kets. Much of Europe may well con­tinue to out­per­form, with Eu­ro­zone economies gen­er­ally grow­ing sig­nif­i­cantly in the face of change. Rus­sia is on a roll and is likely to re­main that way. Ja­pan is on the mend af­ter 16 years of re­ces­sion, but don’t ex­pect fire­works.

The down­side, as For­tune mag­a­zine has pointed out, is that his­tor­i­cally there are strong cor­re­la­tions be­tween hous­ing crashes and re­ces­sions, be­tween oil shocks and re­ces­sions, and be­tween in­verted yield curves and re­ces­sions. But that’s no rea­son to back off. At worst, you can prob­a­bly bet on re­peats of sea­sonal cor­rec­tions as ex­pe­ri­enced in pre­vi­ous years.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.