Good sea legs needed to navigate our choppy markets
A certain part of me believes that in two years’ time it will be business as usual Hannes van den Berg
Portfolio manager at Ninety One
● A sea of red one day, a field of green on another — navigating your course in SA’s markets during the time of Covid-19 is not for the faint-hearted.
SA has experienced stock market crashes before — for example Black Monday in October 1987 saw the JSE plummet more than 20% in a single day, but never has there been as much volatility as there is now.
“This is the most volatile market I’ve ever seen in my career and I was there for Black Monday in October 1987. We are seeing record moves in either direction, where the all share index is going up or down 3% on a daily basis,” says veteran stockbroker Gary Cahn, who is a portfolio manager at Cratos Asset Management.
Cahn says that for short-term day and swing traders, this kind of volatility can be attractive, but warns that there are risks too. “While the volatility does give one opportunities, it is difficult to make the right moves when it comes to trading on a consistent basis.”
He believes if one takes a long-term view, of three to five years, there are great opportunities both locally and offshore, and as it is difficult to time the market he recommends investing in increments spread over the next few months.
Lukman Otunuga, senior research analyst at FXTM, says global equity markets remain at the “mercy of the coronavirus pandemic despite unprecedented measures enforced by central banks and handsome fiscal packages from governments”.
Globally, he says, video-streaming providers such as Netflix, Disney+ and Amazon Prime may prove popular with households during the lockdown.
“Netflix stock has already appreciated over 30% since the start of 2020 and this positive performance could be mirrored across the industry if the lockdown continues. The same holds true for e-commerce businesses as consumers buy and sell products online. One just needs to look at Amazon stocks, which have appreciated almost 25% year to date.”
If you are taking a long-term view there are also opportunities for investors locally and asset managers say certain sectors are expected to be quite resilient. These include food manufacturers and grocery and pharmaceutical retailers.
Yet even these companies, which continue to trade during the lockdown, face risk. For example, some Checkers and Dis-Chem stores and a bread-making facility owned by Tiger Brands have had to close due to staff infections.
Hannes van den Berg, portfolio manager at Ninety One, says that in spite of the chaos in the markets at the moment a part of him believes that “in two years’ time it will be business as usual”.
“There is a certain part of me that thinks two years out, it will be business as usual because in the midst of 9/11 [the US terror attacks on September 11 2001] we all said we would never get on a plane again because it’s too risky and we were all fearing terrorism, but we all got back on planes.”
He expects the same to be true of the world post-Covid-19 and that even sectors that are expected to suffer in the short to medium term, such as travel, tourism and restaurants, will recover in time because “over time humans tend to forget”.
He says that for now those sectors of the JSE linked to food delivery — grocers and home delivery industries — will benefit.
The same applies to the JSE’s insurance sector, which could experience a surge in business after the pandemic.
“I think people will be more inclined to take out salary insurance or some kind of disease insurance in case something like this happens again, to mitigate the risk of losing your income.”
He also expects companies like Naspers, through its investment in Chinese internet giant Tencent, to benefit, with the gaming industry expected to experience a boost.
“With everyone sitting at home, game time has increased.”
Health-care stocks such as Netcare and Mediclinic will structurally be in a good position over time, but private hospitals may suffer in the short to medium term because they are involved in a lot of Covid-19 work at the expense of elective surgery.
There could also be more government spending allocated to the public health sector in the future in preparation for any more health pandemics.
“This might steal market share from private health care,” says Van den Berg.
He also expects the mining sector to offer potential for investors in the future.
The government said on Thursday that the mining industry would begin to resume operations.
“If we can keep on exporting some of these commodities it’s good for our country’s current account,” says Van den Berg. “I am wondering how much of getting our economy back up and running is needed for negotiations with external funders like the World Bank and the IMF [International Monetary Fund]. It’s easier to borrow when you know your economy is up and running.”
He says a few South African-listed miners have recently paid healthy dividends to their shareholders and have strong balance sheets, which will also stand them in good stead.
When it comes to investing, Van den Berg says Ninety One stress-tests each of the companies in which it holds shares.
“If they can survive three months of no revenue, or very little revenue, those are the companies you would like to have exposure to.”
David Shapiro, deputy chair of Sasfin Securities, says grocers such as Pick n Pay, Shoprite and Spar are better placed than other retailers in the current market.
He says pharmaceutical retailers like Clicks and Dis-Chem are also in a better position than others, but “again they’re not selling beauty products because they can’t, so they’re not making full margin”.
Shapiro says the gold price has been “very strong” and it is one area that “looks OK and is holding up”. This could mean gold miners would find themselves in a more attractive position than their peers.
He says mobile operators such as Vodacom and MTN could be well placed and should see a massive increase in data use.