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.

Finweek English Edition - - Fundfocus - By Leon Kok Leon Kok

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.

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