A view of the mar­kets

The Star Early Edition - - BLACK ASSET MANAGERS -

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.

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