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Opportunities amid the chaos

Discovery, Glencore and Naspers can’t be ignored.

Investors have had a bit of a scare in these early days of 2015 with many shares being sold off in the first few trading days of the New Year with talk of markets “crashing” doing the rounds on financial news platforms. Does this represent an opportunity for investors? Some would argue that it does.

“As a start we don’t believe that global equity markets, including South Africa, are in a bubble territory and therefore we don’t expect a market ‘crash’,” says Zwelakhe Mnguni, chief investment officer at Benguela Global Fund Managers.

He adds: “However certain segments of the markets may be out of kilter with fundamental realities, which may lead to a shift in sources of market performance over the next 12 months. We would expect a mid to high single-digit price appreciation for the All Share in calendar year 2015.”

In the near term he expects 2015 to “be a bumpy ride” with volatility driven by macro factors including a potential Greek exit from the European Union (GREXIT) and the impact of lower oil price on the US economy – given that a substantial part of the 2014 growth in economic activity came from the energy sector. “A sustained low oil price is likely to put pressure on the Middle East economies, Russia and ultimately the US. The rest of the world would get a nice oil dividend especially China. The bigger question is whether the decline in oil price is a leading indicator for the global economic slowdown,” he told Moneyweb.

This sentiment is echoed by Devin Shutte, CEO of Regenesys Investments, who says: “There are some people out there predicting a market crash, but predictions by their nature are unreliable. What we are seeing is the financial markets adjusting to an environment of lower growth. This is evidenced in the selloff of commodities (oil included) over the last few quarters, as slower demand is being priced in.”

Keith McLachlan from asset management firm AlphaWealth adds: “’Crash’ is perhaps an overly strong adjective for us right now, as I think the market should fall another 10% – 20% before we can start to use that word. Rather, I’d say that the market is relatively fragile with added volatility, so we have big positive days and bigger negative days as investors struggle with valuations, prospects and the US QE [quantitative easing] unwinding.”

This however is cold comfort for investors who have watched big name shares like Sasol shed more than 10% in the last week.

Asked where he sees opportunity, Shutte told Moneyweb: “Our view is that there is very little value in the local equity market currently, particularly in the large cap counters. We do see some value in resource stocks, but would approach with caution, as they could get worse before they improve, which might take some time. Quality companies with proven track records are key for the current environment.”

Mnguni was more bullish on mid-tier stocks which he believed offered better long-term value.

He identified media and telecommunications group Naspers, financial services group Discovery and resource trader Glencore as Benguela’s picks for 2015.

Naspers has held up well since the start of the year and has proven popular with a number of other asset managers including JP Verster from 36One Asset Management.

Discovery is also popular with stockbrokerage Imara SP Reid which recommended in December that clients add the share to their portfolio from the R110.79 levels. The company is currently trading around R110 per share.

Mnguni concluded: “We believe that long-term there are great investment opportunities in the market and investors would be better off concentrating on the long-term prospect of stocks.”


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