EDITOR’S NOTE

Election jitters adding to blue-chip woes

THE PAST 18 MONTHS have been tough for investors. Even the most wide-eyed small-cap punter would, by now, have developed a jaundiced outlook.

The recent “bad let-downs” at respected blue-chip companies such as Aspen Pharmacare and Tongaat Hulett were just the kind of sentiment-souring episodes the JSE did not need.

I reckon there’s more than a slim chance of more corporate shocks this year. Prolonged tough trading conditions might well have pressured incentivised executives into taking short-term decisions to prop up profits that might have disastrous longer-term implications.

In fact, it is strange to see so many large-cap counters, once market darlings, having a hard time convincing the market they are on the mend — stalwarts such as Mediclinic International, MTN, Brait, Tiger Brands, Woolworths, and Famous Brands.

Perhaps the easiest thing to do this year is back the continued recovery in sin stocks like AB InBev, British American Tobacco and Sun International.

Or stick with Naspers in the hope that Tencent keeps rolling and a few new inspired ventures are uncovered.

Of course, there are now some really compelling valuations in terms of domestically focused stocks — despite the local economy, now further hindered by Eskom’s dangerously disruptive load-shedding schedule, still being on the fritz.

Low single-digit earnings multiples for profitable companies are now commonplace. I’m not sure what to make of counters such as Balwin Properties, where the rating could not be more dismissive despite what looks like a very concerted attempt to engage the market.

But there are some niche counters seemingly capable of generating doubledigit growth. I have become quite enam- oured of specialist financial stock such as Transaction Capital (which I initially picked up through my shareholding in investment company Sabvest) and Capital Appreciation, though I am wary not to overcommit in case there’s a market jolt later.

Overall it’s been a tricky first quarter, and the second quarter, with elections slap-bang in the middle, will probably be trying too.

If I interpret my portfolio composition — which is mostly hedged against the rand — I am investing in fear of a less than optimal outcome in the May polls: that is, there may not be a clear mandate to (re)build the economy and formulate policies for sustainable job creation.

I hope my anxiety is misplaced.