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JSE jitters: sit on the side or pile in?

Biccard, Kooyman and co share their views.

JOHANNESBURG – For months analysts and market commentators have warned that the local market is overvalued and that a correction may be on the cards.

Since its peak the JSE All Share (Alsi) has pulled back by roughly 10%. Read here for more background on what spooked the market. Should retail investors be waiting on the sidelines or piling in?

Moneyweb asked a handful of the country’s top fund managers about their market views.

Simon Raubenheimer, portfolio manager at Allan Gray: 

Sitting on your hands is not always the best strategy. If you invested in the Alsi in 1969 when the market peaked and you sat on your hands, you would have been underwater for 18 years in real terms. 

When valuations are high we prefer to sit on the sidelines or in defensive assets. But there are times when cyclical assets are cheaper than defensive assets and probably carry less risk. Now is probably not such a time. 

We can still find opportunities in companies that sustainably generate lots of cash and have the capacity to grow dividends to shareholders. Those returns are still more attractive than the returns we are getting in cash.

John Biccard, portfolio manager at Investec Asset Management: 

I think investors should still be selling. There are certainly very few things to buy. Before the sell-off, the index as a whole was on 19x earnings.

The market was only more expensive in 1969 and 1994. The sell-off has to be considered against this background.

The Alsi has come down 10%, but in five-and-half years it has gone up 300%. This correction is just a minor blip.

We don’t think investors should be piling in.

Jan van Niekerk, chief executive officer of RECM:

Our analysis of specific companies suggests that there are several of the Alsi’s constituents that we still wouldn’t buy at current levels.

However, there are definitely specific companies where share prices have moved down considerably and that are much cheaper than they previously were. We would consider buying these companies.

I would be careful to blindly buy the market simply because the price came down 10%.

Zwelakhe Mnguni, chief investment officer, Benguela Global Fund Managers:

Would I pile in at this level? I think relative to other assets, equities always deliver better returns if you take a long-term view.

The challenge is at this point in time the market is very sensitive to economic news. It is a news-flow driven market rather than a market driven by fundamentals.

I think the challenge is not to be too aggressively positioned in high risk assets.

Glenn Silverman, chief investment officer at Investment Solutions:

I would be very cautious. The way markets have been moving chances are it might be a time to buy. But I believe there are very large macro risks out there.

Debt levels around the world are high. The governor of the Central Bank of America has indicated that interest rates will have to stay low for a lot longer. If the world has normalised, surely this would not be necessary. The fact that the Bank hasn’t been able to adopt more normal policies suggests that we are in a very unusual environment. Asset classes and stock markets have been huge beneficiaries of the policies implemented by regulators.

I think risks remain quite high. I do not think this is a wonderful buying opportunity. The multiple of the stock market is a bit better than it was but by no means extremely cheap. I don’t think a sell-off of 10% suddenly creates a once in a lifetime buying opportunity.

Kokkie Kooyman, head of Sanlam Investment Management Global:

The main reason for the recent weakness of the Alsi is simply that it was too expensive. But if you look at the JSE relative to most other markets it has fallen more or less the same. Since the end of August, the JSE All Share is down 6.1%, the Nasdaq 6.2%, the Nikkei 3.2% and the MSCI Europe is down 5.7%.

I think the JSE was more expensive than other markets and the underlying picture is worse in South Africa.

I wouldn’t rush in. You have got to be very specific about what you buy and which companies. Specific companies might be undervalued but I am not sure the market as a whole is undervalued yet.

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