Pick carefully from JSE’s mixed bag

ALONG with global markets, the JSE is carefully poised for further advances or some unpleasant retractions before the US Fed embarks on an expected historic rate hike next month.

At a price-earnings ratio of 18, it is above the long-term average of 14.5. Some technical analysis has indicated the market must fall at least another 15% to offer value and attract buyers.

The all share is down 2.23% so far this month, but has eked out a positive 5.6% year-to-date. In contrast, the FTSE is down an annual 4% and the Dow has lost 0.68%.

Despite dire prophecies, and negative global sentiment towards emerging markets, some emerging markets have done quite well. Russia’s Micex is up 24.6%, while the Shanghai Composite has gained 11.6% in volatile trade this year.

In reality, the JSE is a tale of two worlds, with resources down 28%, but industrials firming more than 16% year-to-date. Resources reflect contracting Chinese growth, and industrials more of the expected recovery in developed economies.

Some of the miners have experienced dramatic share price plunges, with Lonmin, for example, losing 93% since January. Anglo American is down 50% to 1999 levels. Mobile network operator MTN has shed 31%.

But among industrials, British American Tobacco has gained 28% and Naspers is up 39%. SABMiller has rocketed 43% on the Anheuser-Busch InBev takeover bid. Steinhoff has added 41%. It is clear the JSE is offering a mixed bag, and to tread the minefield successfully, some careful stock picking is essential.

RETAIL-focused Dipula Income Fund has been on the acquisition trail, but it needs to be careful about quality control, in the light of a struggling economy. SA’s economy is set to grow at a sluggish 1.4% this year and only 1.3% next year, according to the International Monetary Fund. This will weigh on consumers and, in turn, affect retail assets negatively.

Dipula released financial results for the year to August, in which it reported distribution growth that was in line with its market guidance but hardly exceptional.

Adrian Jardine, an equity analyst at Avior Capital, says he expects the group’s smaller properties to underperform in the next financial year and that this could hold the fund back if it did not manage to rid itself of some weaker assets.

Dipula CEO Izak Petersen, however, has plans to diversify assets. This could mitigate the risk in the company’s portfolio and boost income streams. He said he was looking to make a residential property acquisition priced between R1bn and R1.5bn early next year. There is strong demand for residential property, with many listed funds moving into this sector to diversify their portfolios.