To my mind
“TO BE, OR NOT TO BE: that is the question: Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take to arms against a sea of troubles, and by opposing end them?”
The current financial and economic climate very definitely has undertones of Hamlet’s famous soliloquy. Do you invest or not? Are we in a recession or not? The answers to both financial dilemmas are far less obvious than the two clear options facing Hamlet in his existential crisis. In fact, the many – and sometimes totally contradictory – views and theories put forward by investment specialists and economists about the current state of the share markets and economies resemble leaves scurrying before the wind. And confused investors are supposed to make sense of this.
In the turmoil of the financial world there’s much disagreement over the extent of the downturn, how long it will last and whether we are in fact in a global recession.
However, PricewaterhouseCoopers economic adviser Roelof Botha says the liberal use of the “R” word could indeed feed negative sentiment to the point where it could bring a country’s economy to its knees. In a column in Sake24 Botha uses a graph to illustrate that the International Monetary Fund doesn’t foresee a recession in any of the world’s leading economies, especially not in emerging markets. On the other hand, Investment Solutions economist Chris Hart says the cancellation of large projects in the mining and building sectors indicates SA is facing a recession in gross domestic fixed investment.
The fierceness with which the financial environment worldwide imploded wrongfooted even an experienced businessman such as FirstRand Group chairman GT Ferreira. Though he warned shareholders a year ago not to expect a repeat of the group’s excellent 2007 results, he didn’t foresee the recent “carnage” in the financial markets.
It’s always been the general view in investment circles that a slaughter such as this – in which the share prices of quality companies come tumbling down – creates excellent buying opportunities. But last week, seasoned financial journalist and share trader Vic de Klerk poured cold water on that line of thought. He warned that so-called value shares could actually be “black value holes” that continue to tumble after you’ve bought them. This week De Klerk goes one step further and questions Warren Buffett’s traditional investment strategy, which has always been regarded as the winning strategy for longterm investors. A buy-and-hold strategy, with blue chips making up around 70% of a portfolio, no longer works, says de Klerk.
For the JSE’s all-share index to recover to the level of 32 000, the share prices of the big guns in the index should at least double, but preferably increase by 200% to 300%.
De Klerk says that can only happen if there’s a runaway demand for commodities, as was the case until about six months ago. And he’s not optimistic about such a scenario in the foreseeable future.
In an effort to make sense of all the negative news, some investors are looking at the relative strength of shares, calculated by dividing the share price by an index. That will single out a share such as Shoprite, as pointed out on page 66.
There are a number of other shares investors can consider in these confused times, as is shown by the choices of various experts approached for our cover story. But their views are diverse and some of their picks will stimulate lively debate.
Though one hopes the final outcome for investors will not be akin to a Shakespearean tragedy, the ominous chanting of the three witches in Macbeth – “Bubble, bubble, toil and trouble” – will certainly continue to pervade global markets for some time to come, as the headline over a recent report in The Australian predicted.