Many high-net-worth individuals will be using current market weakness as a value opportunity and chance to grow their long-term wealth even more, judging by the advice of Barnard Jacobs Mellet Private Client Services (BJM PCS).
This service provider to independently wealthy South Africans is advising clients that there is a high probability that current equity-market jitters will lead to an over-reaction by many retail investors, with the prospect of a sell-off by some funds and buying opportunities for astute operators.
Mark Appleton, chief investment officer at BJM PCS, points out: ”Markets run on greed and fear, and fear is very much the driving force right now. If the pattern of the last 100 years is anything to go by, a number of retail investors will be heading for the exit, fund redemptions will go up and underlying fund managers will be forced to liquidate stock positions.
”This will probably ensure that the market weakens more than it otherwise might. As long as the fundamentals stay intact, however, this weakness will result in some very attractive buying opportunities.
”Implied risk premiums are already back above 4,6%, making the local market more attractive than it has been for a while.”
The market watchers at BJM PCS say the platinum and banking sectors have been particularly hard hit by the recent bout of nervousness, suggesting that bargains might now be on hand in those equity categories.
Preference shares also remain attractive with average forward dividend yields in the 10,5% region.
BJM PCS is also relatively upbeat about offshore equities.
Appleton notes: ”Our feeling for some time has been that in as much as the credit markets have been under-pricing risk, global equity markets have been reflecting too much risk aversion.
”Global debt-equity levels in the non-financial corporate sector are as low as they have been since 1988, the global economy is in good shape (expected to grow in excess of 5% this year) and corporate earnings continue to grow, albeit at a slowing pace. Importantly, global equity valuations are cheap in a historical context.”