Mix­ture of cel­e­bra­tion and cau­tion

Finweek English Edition - - INSIDE - DON’T WE HAVE A BIZARRE SIT­U­A­TION CUR­RENTLY WITH A COM­BI­NA­TION OF RECORD­BREAK­ING MAR­KETS AND POOR ECO­NOMIC PER­FOR­MANCES? YOUR COM­MENTS ON MAR­KETS GLOB­ALLY? HOW FAR DOWN THE ROAD IS THIS GLOBAL BULL MAR­KET? WOULD YOU CON­SIDER DE­VEL­OPED MAR­KETS EX­PEN­SIVE

Fresh highs are be­ing reached in f inan­cial mar­kets across the globe with Amer­ica’s eco­nomic re­bound, the fis­cal stim­u­lus in Europe and eco­nomic fig­ures in China be­ing re­vised pos­i­tively. The strong dollar has also wrought less dam­age on US cor­po­rate prof­its than was ex­pected.

Leon Kok spoke to Stan­lib direc­tor and off­shore ex­pert Paul Hansen about how this is all be­ing played out. In­deed. A good per­form­ing mar­ket is not nec­es­sar­ily a mir­ror of a good per­form­ing econ­omy. Europe, Ja­pan, South Africa and per­haps even China are in­ter­est­ing ex­am­ples.

Q: The MSCI World In­dex’s hit­ting a record high ref lects a re­vival of the sixyear global bull mar­ket, sup­ported by most other lead­ing bourses. The cur­rent US bull mar­ket is the third best ever.

The FTSE 100 in Lon­don is at its high­est since 1999. Im­por­tant to note to­day though, is that the in­dex is very dif­fer­ent to what it was then. It has be­come glob­ally di­ver­si­fied com­pared with a mainly do­mes­tic fo­cus.

In Europe, the Dow Jones Euros­toxx 50 is at a seven-year high and up 13% this year. How­ever, it’s still about 34% be­low its al l-t i me record i n 2000. Record highs have been hit in Ger­many and France is do­ing well. The Ja­panese mar­ket, mean­while, is at a 15-year high and up 7% alone this year.

Do­mes­ti­cally, the JSE Top 40, also at a record, has risen 12% in rand terms in

the past five weeks.

Q: At this stage there is no rea­son to be­lieve that it ’s about to end. In­ter­est rates re­main very be­nign. In­fla­tion is be­nign. The battle against de­fla­tion will prob­a­bly be won. So rel­a­tive to bond yields and cash, eq­ui­ties is the ob­vi­ous place to be.

We still like off­shore prop­erty which is yield­ing about 3% plus a year.

Q: Not nec­es­sar­ily so, but nor are they cheap. In the past six weeks, we’ve had more pos­i­tive sur­prises in Europe than neg­a­tive sur­prises, but in the US pos­i­tive sur­prises have dipped a bit. There could be a lot of up­side in Europe yet.

Eco­nomic growth in Ger­many dur­ing the last quar­ter was 1.7% com­pared with 1.3% pre­vi­ously. The credit im­pulse in Europe is be­gin­ning to move up nicely – so credit is pick­ing up and along with it de­mand.

In ad­di­tion, quan­ti­ta­tive eas­ing has started, though don’t ex­pect it to be as di­rectly pos­i­tive as it was in the US. But it will have some ef­fect.

Q: We’re im­pressed with the new lead­er­ship in In­dia and very pos­i­tive on it. Ev­ery day you read of changes for the good. The IMF ex­pects In­dia to sur­pass China’s growth in about a year.

China’s growth can be ex­pected to slow down to 5%, but we’re still bullish on its stock mar­ket. Sig­nif­i­cantly, the MSCI China In­dex in dol­lars is cur­rently trad­ing where it was 19 years ago. Th­ese are mainly com­pa­nies trad­ing in Hong Kong. Be­sides, it has moved into an up­trend which could go a long way.

In­dia, China and much of South East Asia are big im­porters of com­modi­ties and ex­porters of f in­ished goods to the US, earn­ing US dol­lars which should be good for the re­gion gen­er­ally. China has let its cur­rency weaken by about 3% against the dollar over the past year.

Q: Yes, in all prob­a­bil­ity, though the mar­ket could be very volatile this year. The JSE for all in­tents and pur­poses fol­lows global mar­kets. Ob­vi­ously, we have is­sues in SA, but they’re gen­er­ally over-shad­owed by global mar­kets. The bull mar­ket is alive.

Q: We like fi­nan­cials and banks, and we like IT. But we think that it’s also time to switch from the non-cycli­cal sec­tors to cycli­cal sec­tors like au­tos.

Hos­pita l s a nd pha r maceu­tica l com­pa­nies are in­ter­est­ing, but they’re stretched and you need to be care­ful about t hem. We’re not sure about min­ing, though iron ore prices are likely to re­main soft for a while and there is an over-sup­ply in oil. Prices could still go down to $30-$40 a bar­rel.

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