Some securities worth a look
Despite some negative, or at least cautious, views from analysts, there is value to be found during these challenging times.
the general market outlook has been unusually mixed this past quarter. Varying views continuously cropped up. I was delighted to learn, however, that the predominant outlook among commentators in Singapore, Bangkok and Seoul is that Asian growth will remain robust until at least 2022.
Locally, I met with new Old Mutual Investment Group MD Khaya Gobodo, who cautioned against harmful domestic paranoia, saying that while President Cyril Ramaphosa currently finds himself in an intricate situation politically, he fully comprehends that gross fixed capital investment and business confidence are key drivers of economic growth and he is determined to lift these to levels last seen between 2003 and 2010.
Gobodo believed this plausible, but was insistent that it had to come with robust government partnering with investee companies, inclusive social-economic growth and transformation, well-articulated and sound strategies, and transparent and ethical leadership.
Said Investec’s Clyde Rossouw: “As a general rule, we continue to believe that the case for offshore investment is stronger than the case for investing within Southern Africa, particularly if you believe there is potentially further currency weakness to come.”
Incidentally, we’ve given extensive attention in this edition to the Coronation flagship offshore funds worthy of reflection.
Also insightful is Prudential Unit Trust MD Pieter Hugo’s views on optimum offshore exposure. His firm’s experience is that one typically needs approximately 35% offshore exposure to achieve a return of inflation + 5% (a widely-used target for retirement funds), while also meeting a fund’s risk parameters.
This positive note from his colleague, Hamilton van Breda: “Despite the long global rally, certain regions and sectors remain attractively priced. Going forward, we believe that balanced funds should perform better over time, based on current class valuations and fund positioning.”
Van Breda expressed optimism about the South African equity market, maintaining that valuations are relatively attractive, being priced to produce a return of around 12.9% over the medium term.
Other analysts disagreed, arguing in fact that domestic equities could drift even lower. The reason simply, they said, is that equity markets take their cue from earnings, which, in turn, ultimately depend on the economy.
And nothing too encouraging can be expected from either slumping performances, or, at best, those bordering on recession.
PSG Asset Management’s Adriaan Pask emphasised the importance of managing the downside, and in the process securing the potential for the upside, especially if investors are approaching retirement.
“This is because they have less time available to recover from capital losses before they start drawing an income in retirement.”
An exciting new addition to the local market that we highlight is the recently launched Brenthurst Global Equity Fund. It gives clients exposure to leading companies, regions, currencies and countries at a fraction of the cost of other internationally managed equity funds.
Another interesting addition is Templeton Emerging Markets Fund, which we haven’t looked at for more than a decade. Launched in February 1991, it has returned a cumulative 279% in US dollars since then, and 31% over the last three years.
The case for South Africans exposing themselves to a leading dollar-denominated emerging market (EM) fund is a no-brainer. EM’s role in driving global growth should not be underestimated, either including or excluding China.
EM ex-China accounted for 32% of 2017 real global growth in US dollar terms, while China alone amounted to an additional 27%. By comparison the US contribution was 16%. Enjoy the read. ■
is an independent writer on public policy and investment markets.