Dear Investor
Six weeks after the referendum about Britain’s membership of the EU and since then stock markets have dropped off in panic and then recovered strongly.
This was an understandably emotional reaction to an unexpected decision (with several potential problems which need to be addressed within the UK).
Now that Britain has appointed a solid new PM in Theresa May and she has appointed a new Chancellor of the Exchequer and other ministers of acceptable reputation, all is not lost in the minds of investors.
The Pound is still weak, this is an opportunity, both for Europeans and for Americans as well as for South Africans.
For us, with the FTSE ALSI index on the JSE hovering between 52,000 and 53,000, in comparison with its highest level of 54,000-odd last year, the question is this “Is the JSE still a viable option for almost all of my hard earned cash?”.
In my opinion, the JSE is no longer the place for cautious equity investments. This is because the large cap universe within the JSE is diminishing and the local stock market isn’t growing in the number of new counters very quickly.
This means that it is becoming an emerging market stock market.
There are a few really interesting stocks worth looking at, some new entrants such as Stor-Age and Sygnia, but these are not the type of stocks which large fund managers can buy as they are too small.
Fixed interest investments such as Money Market accounts are attractive at current rates. So are low-equity and medium-equity Balanced funds as these are able to move between asset classes efficiently, unlike their pure equity (SA only) counterparts.
Where to invest one’s capital needing appreciable growth levels over the next several years (as against slower growth which is attainable through low and medium-equity Balanced funds)?
Two serious options, one possible if foreign exchange control legislation relaxes:
1) We need to buy hard currency into the recent Rand strength (be careful not to invest during a panic such as we experienced in recent months) and to invest that capital in well-diversified global portfolios
2) We need to invest in flexible mandate funds which allow the managers to decide how much to invest in SA and how much to invest overseas
3) If Treasury allows further overseas exposure in local pure equity funds, they may provide a third option going forward.
We are feeling rather bullish this week after our own election. Should this change the way we think about where the best long term high growth (when converted into Rands) investment destination is?
Possibly we can expect a more bullish future ahead of us, possibly not. It’s going to take more to convince me that the ANC government is going to eradicate corruption, get serious about education, free up the labour laws and to turn its back on populist rhetoric in favour of an honestly frank free market approach to governance.
Kind regards
Brian
BRIAN GROOM
B.Econ, Adv Dip Int’l Tax, AFP
Principal Member
GROOM INVESTMENT CONSULTING CC
Registered Financial Services Provider no. 13262
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