Lynda Loxton
Amid signs of slower economic growth and continued lower inflation, Sanlam this week launched a gilt unit trust to provide mainly institutional investors with an alternative to equities.
Senior portfolio manager Kobus Louw told a media briefing that the upsurge in share prices after South Africa’s re-entry into the world economy had just about run its course and future performance would depend on fundamentals such as earnings growth, economic growth and interest rates.
As a result, he expected more sedate growth from equities over the next year or so, while bonds became a more attractive investment option, mainly for institutions and wealthy individuals. The minimum lump sum investment for Sanlam’s gilt unit trust will be R5 000 and the minimum monthly cash or debit investment will be R500.
Louw estimated that South Africa could see growth in the region of 2,2% next year and 3,3% in 1998. But real interest rates remained “very high” to curb inflation, which he expected to be very stable over the next few years at between 7,5 and 8%.
`If you believe that inflation will be stable … it seems as if our long-term and short-term interest rates are at least 1% too high,” Louw said.
This was mainly because there was “a lot of uncertainty in the market” especially about exchange controls, the rand and the possible retirement of Reserve Bank governor Chris Stals.
At the same time, however, there has been a strong inflow of foreign funds into bonds over the last six quarters, “which would not have happened if the stocks were not fundamentally internationally attractive”.
He admitted that with all the uncertainty in the market “there is a lot of risk. The new government is just like the management of a company, and the management of a company depends to a large extent on the track record and expertise of the management.
“In this case, it does not have any track record so until investors absolutely gain some confidence, I do believe that we will see a lot of volatility in our markets.”
This meant it was unlikely that interest rates would come down soon, despite being too high, and this would be a continuing attraction for foreign investors.