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Trade reopens as the vaccines are coming in

‘The fact remains that we need offshore and international travellers in South Africa to help re-boost our economy’ – Mia Kruger, director Kruger International.

SIMON BROWN: I’m chatting now with Mia Kruger, a director at Kruger International. Mia, good morning. I appreciate the early morning time. Lots of talk around this reopening of trade as the vaccines are coming in. Of course it’s lumpy, it’s happening a lot in the UK and the US, Europe, and South Africa less so. Are you spotting opportunities and maybe sectors that have had a really tough year? But as life starts to return to normal, perhaps there are some opportunities.

MIA KRUGER: Good morning, Simon. Yes, we are definitely seeing a trend in value stocks. We’ve seen that in the US now, also. When you look at the indices, at the MSCI all countries value index, on Tuesday it will be the 12-month anniversary of its eight-year low. Since November 11, just after the US election, it has actually outperformed and jumped 22% – and that was on November 6. And when we look at the growth index, it was up only 8%. So there’s a significant difference between what we see here. Momentum has also lagged significantly. It just shows you which shares in which sectors are actually in favour at the moment. 

I read some interesting stats last night, which showed me what the banks expect when these $1.9 trillion cheques start flowing into people’s bank accounts. They actually expect people to start receiving these cheques from Wednesday in the US, and they estimate that that will actually lead to $3 billion worth of investment daily into equities, which leads to $1.5 trillion more typical daily inflows over the previous month. So that is a significant number.

The estimates between the banks are sort of varied, but the fact is there will be a lot of money flowing into equities. And the trend at this stage, definitely, especially in the US, is value stocks. 

Another interesting thing that’s happening now in the global market is the fact that, when we look at these indices, you don’t even have to be a stock picker.

You can just be a factor investor because the momentum index and the value index are starting to overlap, which means that there are numerous companies that now not only fall into the value index but also into the momentum index, which hasn’t happened since 2016. That was the last time that we saw a slight outperformance of value.

So that is sort of a holy grail for factor investing happening now as well. So you don’t even have to be a clever stock picker, which I’m not, definitely not. I prefer to have a broader base of diversification – and I think you’ll be winning from this side as well.

The story in South Africa is not quite the same as it is globally. I didn’t spend a lot of time talking about that now, because the fact remains that we need offshore and international travellers in South Africa to help re-boost our economy, especially on the hotel and leisure shares here. When we look at those companies, they’ve taken significant hits. We looked at Sun International this past week and the other hotel companies as well. They are all waiting for business travel to resume. They are waiting for international travellers to come back. And unfortunately, with the slow rollout of vaccines on this side, I can’t see our economy opening fully for those travellers to return in numbers anytime soon.

Globally it looks stronger. I just listened to … Bank of America … saying that they think the Covid-19 risk is now over. So there’s great optimism. Optimism is at a high in the US at this stage and it looks like there’s a lot of money going to flow into the equity market there. So, on the global side, your portfolio makes a lot of sense; but on the local side, on the value trades, I’m not that convinced.

Read: Covid risk is over, says Bank of America

SIMON BROWN: Yes. It’s the Bank of America talking about the US. Of course in the US their vaccines are rolling. In South Africa not so much. So perhaps it is the US. I’m looking at the Disney chart, for example, and that stock’s up almost 100% since that November date you mentioned.

We’ll leave it there. Mia Kruger, director at Kruger international, I appreciate the early morning.

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Mr Brown correctly so touched on the real issue i.e. the difference between failing countries( Brazil, Mexico and South Africa) and decent countries(UK, Israel, US etc) .

The vaccination status between these groups is colossal. Covid is very far from over in the failing countries-in fact it is likely to get a lot worse as the vaccinations are simply not happening.

In addition our leadership is delusional in their perception of their ability to implement a vaccine program.

Indeed, because our National Health Department are the only purveyors of the vaccine it is going to take decades to get ” herd immunity”.

End of comments.

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