Bram Stevens
South African equities put on a stunning performance in the first quarter of 1999, spurred by falling interest rates and bullish global markets, fund managers said this week. The key all share index gained 18,1% to end the quarter at 6 382,5, buoyed by sharp gains in the interest rate-sensitive retail and furniture stocks.
“It [the market] has been stronger than we originally anticipated,” said Iain Anderson, head of research with Infinity Asset Management. South African interest rates were raised to a decade high of 25% during a global economic crisis last year, forcing fund managers to underweight equities.
Prime rates fell by three percentage points to 20% in the first quarter, giving equities, particularly interest rate- sensitive stocks, such as retail, a boost. The financial index, composed of banks and insurance shares, gained 10,6% in the first quarter.
But fund managers said the sector, which was the Johannesburg Stock Exchange’s (JSE) star performer last year, had disappointed. “I was quite disappointed by the way the banks and insurance shares performed. I expected them to do better, in light of strong global stock markets,” said Louis van der Walt, senior portfolio manager and director of PSG Asset Management.
The industrial index rose 16,15%, with interest rate-sensitive sectors accounting for the bulk of the gains. “Furniture and retail stocks did quite well. The reaction to interest rates came a lot quicker in those sectors than a lot of people were expecting,” said Anderson.
But Van Der Walt believes the retail and furniture sectors were pushed up too high and expects a correction in the second quarter. “I think the rally in the sector was a bit overdone and that sector could go sideways for the next three months.” Gold shares gained 5,32%, but they remain unpopular among fund managers.
“We are still not investing in gold shares. Gold is not a long-term investment vehicle,” said Van der Walt. Gold had a volatile first quarter, moving above and below $280 an ounce, amid expectations that the International Monetary Fund would sell its reserves to fund poor nations.
Fund managers are bullish on equities in the second quarter, as attention shifts to the long-forgotten cyclical stocks on growing expectations of an upturn in the commodity cycle. Merrill Lynch’s Trevor Greetham said the stronger world economy will translate into “rising commodity prices, lower interest rates, improved balance of trade and stronger domestic growth for South Africa”.
The forthcoming June elections are not expected to have a negative impact on the market. “My expectation is that the election will go very well, from an investment point of view. I am very bullish for the quarter to the end of June,” said Greg Amoils, portfolio manager and director at Irish & Menell Rosenburg.
Economic optimism is on the rise and fund managers abroad are becoming bullish not only on resource and commodity stocks but emerging markets as well, making South Africa very appealing. “I expect the JSE to appreciate quite substantially, especially on the back of demand for commodity stocks.”