Investment chances despite gloom

DESPITE the fear and uncertainty surrounding the South African markets, the country still has pockets of opportunity for investments with the promise of strong returns.

This was the message from PSG chief investment officer Greg Hopkins, at the company’s summer roadshow in Port Elizabeth yesterday.

Hopkins said the volatile economic climate, which had caused widespread fear around investments, actually provided a good environment for long-term investments.

“It is a very difficult environment in which to be making investment decisions,” he said.

“Our short-term performance has not been great, but over the next five years there are a lot of moving parts that we think will set us up for greater returns in future.”

Hopkins advised investors to take a counter-cyclical approach when considering their next moves.

“Cycles exist at company, industry and market level and they are perpetuated by human nature.

“[Investors] overshoot and undershoot [on projected growth], with the key driver being the human emotions of confidence and pessimism.

“The typical emerging market cycle is that the US dollar strengthens, after which the emerging markets’ currencies fall,” he said.

“Then we import inflation, banks raise rates and we call it a crisis – but it happens every six to seven years.”

Hopkins said the last crisis – last year – had presented a great buying opportunity for keen investors. “We are back off to the races – South Africa’s being left behind, but there are still some pockets of opportunity.”

For its own portfolios, PSG chooses firms that were trading at a discount.

“We find opportunities with low expectation,” Hopkins said.

“You have to be careful, there is a big range of outcomes, but there are pockets where expectations are low, and courage is needed to invest.”

But equity analyst Mikhal Motala warned against falling into “value traps” of companies with shares that appear cheaper than they really are.

“The only way to avoid this is to do your homework,” Motala said.

“Our best investments have been where there was discomfort, but you need a robust checklist focused on the management and the numbers.”