Following a turbulent first eight months of the year, Investec Asset Management (IAM) remains cautiously optimistic on equities.
Investec Asset Management director Jeremy Gardiner said in commentary on Friday that the JSE’s all-share index was up 23% this year, exceeding all expectations. This was despite rampant oil prices, resurgent inflation, two rate hikes, a war and a correction.
“Less direct influences, but equally unpalatable, include a rape trial, a corruption trial, a spike in crime levels, Aids, and some of the worst sport across the board (but particularly from our national soccer and rugby teams) seen for years. Throw into the mix a miserable winter, and you get the distinct impression that the glass that was half full, is now very definitely half empty,” Gardiner said.
He added that these factors had seen numerous market commentators declaring the stock-market successes of the past few years overdone. “Some have been calling for a significant market correction for over a year now, to the detriment of their investors,” he asserted.
Gardiner urged investors to be careful of allowing sentiment or emotion to sway investment decisions.
“Yes, there appears to have been a recent spike in crime levels. Government appears to be cognisant of this fact, as are big business, and the two appear to be working together to find a solution. Hopefully we can finally make this a priority, as there is no doubt that both business and tourism would benefit significantly from a reduction in crime levels, not to mention mending the scars which crime inflicts on the psyche of the nation.
“Yes, we read about corruption all the time, and that is exactly the point. Nobody can say whether or not corruption is better or worse than in the old South Africa, but at least we get to read about it! This in itself is a huge deterrent to actually committing corruption.
“In fact, recent surveys have indicated that South Africans’ perceptions of the extent of corruption are roughly four times the actual levels. South Africans are still coming to terms with living in a transparent world — prior to 1994, we lived in a cocoon where newspapers were not allowed to print anything about corruption. Certainly, corruption is not new to South Africa.
“On the subject of Aids, whilst the impact on the country from a humanitarian perspective is enormous, the impact on the economy is proving to be far more muted than originally forecast. Several recent surveys have indicated that the forecasts of the late Eighties and early Nineties, which predicted the collapse of the economy by 2000, were incorrect. Not only has our economy not collapsed, but it is stronger than it has been for decades.
“HIV/Aids policies and programmes offered by companies are keeping HIV-positive workers productive for longer, thereby reducing the direct economic impact.”
Gardiner said that the local equity market’s performance this year came despite these issues.
“The rand is off 14% and looks set to consolidate in the R7-to-R7,50 per dollar range, which will provide a modicum of relief to the economy, cushioning economic growth to some extent from our forecasted two remaining rate hikes of 50 basis points each, probably in October 2006 and March 2007,” he commented.
He continued that positive global sentiment toward equities had also contributed to the JSE’s strength.
“However, inflation is not yet contained, the United States housing market remains unstable and the risk of further US rate hikes putting pressure on the US consumer — and therefore punishing emerging markets through slower growth — remains real.
“And remember, when punishment is being handed out, the bigger your current account deficit, the more ‘the pain’. Once again we remain cautiously optimistic, and our advice remains not to avoid equities, but to manage your consumption thereof based on the amount of risk you are prepared to stomach,” Gardiner concluded. — I-Net Bridge