A view of the markets

THE bounce in global markets continues, with South Africa in particular demonstrating amazing resilience. STANLIB Retail MD Bongani Mageba describes the big events of the past week on the local front as being “new, fresh all-time record highs for the JSE Industrial Index, the JSE Financials Index – and therefore by default the JSE Financial & Industrial Index”.

The Financial & Industrial Index has now gained some 12 percent from its low of just one month ago. Within the Financials Index, the Life Insurance sector has gained a phenomenal 16.3 percent over the past month, from its low point (to a record high), while the Banks Index is up 13.3 percent, also a new record high. “This just shows what a great opportunity these corrections are – in a bull market,” says Magema

As to offshore markets, the MSCI World Index has gained 7.8 percent in dollars from the recent low, or nine percent in rands (in the past month). Mohamed Mayet, MD of Sentio Capital, says: “We still continue to believe that various economic regions are in different points of their economic cycles.

“Within developed markets, the US and UK are in a clear uptrend with growth at normalised levels, while Europe and Japan are experiencing stop-start economic growth. On the reverse, emerging markets appear to still be in down cycle from a growth perspective.

“This conflicting information from the different regions will cause market volatility going forward.

“Overall, in our view, in aggregate global growth should improve as the US and UK will continue to grow at around three percent. The weak euro and yen, plus the potential for further stimulus from the European Central Bank should provide support for growth in Europe going forward.

“Developed market growth rates also should support growth in emerging markets further down the line as well.

“The improving global growth outlook, together with still high investor cash levels, high central bank liquidity and the declining oil price, which will act a de-facto rate cut for the global consumer, should support equity markets over bond markets going forward.

“Thus, we view the recent sell-off in equities as a buying opportunity into weakness as bottom-up valuations are starting to look more attractive again,” he says.

Mayet adds: “Domestically, economic growth still looks weak. Thus, our preference is still for companies with global developed exposure over domestic consumer exposure.

“However, this needs to be tempered to some extent as valuations on some domestic focused companies are starting to look attractive from a bottom-up perspective on a risk-adjusted basis.

“With domestic bond yields now below eight percent, we do not see attractive value in bonds, as we think the next major move in global yields as higher and we are concerned over the impact of South Africa’s deteriorating fiscal position and ratings downgrades on bond yields going forward.

“Given our negative view on SA yields and the recent strong run in property as well, we are seeing less bottom-up value in property. We prefer equities over property and then bonds. Within equities we still favour global exposure over domestic stocks in general,” says Mayet.