Northcliff Investors Club analyse SA markets

Pieter Koekemoer (CFA, CFP) Head of Personal Investments at Coronation was the speaker at Northcliff Investors Club’s sixth breakfast. The event was held at Benvenuto conference estate in Kelland, and a large group of investors listened to his expert opinion over a scrumptious breakfast.

Koekemoer frankly doesn’t find South African equities very riveting at the moment. “The market is very full, it’s not the time to be brave,” he cautioned.

Economically, South Africa is not in the best place it has ever been in.

“We’re running one of the highest twin deficits we ever have,” Koekemoer said.

“The government is spending more and rating agencies are very nervous about the lack of fiscal discipline. We’re on a bit of a knife’s edge when it comes to credit worthiness.”

Our country, he explained, is very reliant on foreign investors at the moment. “It’s quite likely we’ll see a credit rating downgrade soon. This is not something to be alarmed about though. We’re not exporting enough and we’re importing too much. The platinum strike certainly isn’t helping matters.”

According to Koekemoer, Turkey and India are in comparable positions. Their economy and currency is vulnerable.

The platinum price has not budged due to fundamental over-supply. The reason for this, he said, is that a quarter of the world’s platinum supply consists of scrap supplies. Platinum mining will probably shift from Rustenburg to Waterberg – it’s easier and cheaper to mine there.

“However, from an investment point of view the platinum strike is strangely positive.We can expect the supply base to be better policed.”

Koekemoer spoke about the financial markets around the world. Investments in Africa are difficult to access, he said. “There are two key issues here. Africa is the big story, there’s a lot of opportunity on this continent thanks to its rapidly growing middle class. But there’s still a lot that needs to happen to get there. Government standards in trading are not what we’re used to. The United States is still the biggest market out there,” he reported.

“I don’t think the interest rates in the United States will normalise. We’re probably looking at normalisation in 2016, 2017.”

Environmentally conducive growth assets like property will do fairly well at the moment, Koekemoer reckons. “Europe seems to be muddling through. Germany is doing well. The market is emphasizing the good news, and growing is below trend.”

“Our view,” he said , “is that the world has become less realistic due to a lot of uncertainty in the markets. However, emerging markets have become attractive to invest in – that’s the good thing about the bad news.”

He cautions against buying government bonds at present. However, global equity market valuations are still attractive at 17.5x average. It’s not as attractive as it was in the post-financial slump, he admitted, but it is still the most attractive asset class.

Asset-wise, the rand has weakened a lot but it’s not a good idea to reduce your offshore portfolio, Koekemoer warned.

From an investor’s perspective cash is not an asset at the moment.

“I don’t have any really good news,” Koekemoer admitted.

“Nothing in the market is particularly exciting right now. It’s not a slam dunk. It’s not an open goal.”