Prices may drop, but there is value out there

MONEYWEB, Bruce Whitfield, 22 September 2001 

Many of the professionals are sitting on the sidelines, but others are quietly picking up good, cheap stocks at bargain prices. You may be able to pick up shares more cheaply in a week or two, but you risk missing out on great value now.

Shell-shocked shocked private investors around the globe are anxiously looking for direction from world markets, and are scratching for clues as to what they should be doing with their money. But, if you are hoping for specific guidelines from South Africa’s top fund managers, think again. Those who are buying, are keeping most of their current share picks to themselves and are divulging little about their survival strategies. Times are tough, and professional investors are currently being tested to the maximum. The old adage that making money in a bull market is easy, but it takes real genius to make profits in a bear market, rings true, and the professionals are playing this one very carefully.

A snap survey reveals tentative buying by most Asset Managers, but the action on the JSE in the past week as been dominated by arbitragers. In other words, individuals who buy shares below fair value, when markets are trading at a discount, with a view to making their money when markets turn.

“That’s what happened on Friday,” says head of derivatives at BOE securities, Arthur Buchner, “The arbitragers came in, they bid the futures, they were given the futures by curve traders. They in turn went and sold the spot market down which resulted in our sell-off early on in the morning, and later on, even when the FTSE market actually closed and everyone left, there was fear out of London they couldn’t trade on their stock, so they phoned the South African brokers, sold futures into South Africa and that exacerbated the fall.”

In the jargon filled world of the futures players, it illustrates the impact that derivative dealing is having on the JSE. The local market has also been seeing a higher percentage than normal, about 70%, rather than the normal 40% of trades being carried out by day traders, as opposed to private investors and institutions, which normally make up a bigger percentage of trades in the market. Buyers are scarce in a market dominated by derivative traders.

Billions of Rand have been wiped off the value of South African’s share portfolio’s since last Tuesday’s terror attacks in the United States, leaving both private and professional investors bewildered as to where global markets are headed. Some of the country’s top asset managers are slowly but surely picking up quality companies at bargain prices, but all of them know that markets are likely to get worse before they get better, and the recovery may be a long way off.

Here are the views of some of the country’s top investors:

Liberty Asset Management: Fund Manager Imtiaz Ahmed will not reveal group thinking at this stage, but does say that this is time for the “smart investor” to be looking for good value. Critically, in his view, investors should not rush into the market and become involved in buy shares for the sake of doing so at low prices. “There is no urgency,” he says, “the investors motto now must be to take things slowly and cautiously.”

Investec Asset Management: Chief Investment Officer Piet Viljoen is still bullish on South African equity investments, but warns investors must pick their shares, very, very carefully, choosing those with strong underlying valuations, with good dividend yields.Since last Tuesday’s terror attacks, they have been buying selectively, and Head of SA equities, Gail Boon says outflows have been quieter than normal, with a bias toward buying. “There are some shares too attractive right now not to be buying,” she says.

RMB Asset Management: Chief Investment Strategist Wayne McCurrie says his team has been neither buying nor selling in the past week. He is watching developments closely to try and determine the long term impact of the attacks on the global economy. “It is so difficult to actually get a handle on what the extent of the slowdown is going to be.”

Allan Gray: Claims it’s pretty much business as usual, with a fair degree of bargain hunting among value stocks. “When things are value, we have confidence to buy them.”

Old Mutual Asset Managers: Peter Linley warns that global equity markets are still very much in shock and investors must proceed with extreme caution. “Cut out emotion, only buy good shares that the market is panicking out of.” The big problem as he sees it is that no one has any idea as to how long the crisis will continue, or just how low the markets will go, or for how long.

BOE Asset Management: The team is looking at companies with attractive dividend yields. Big companies are looking cheap, with dividend yields of 4%-5%, and in the current low interest rate environment, it can be better than keeping your money in the bank. BOE are not sellers in the current market, but like their colleagues are cautious buyers.

Mawenzi Asset Management: Charles Graham, regular Classic Business radio program market commentator, recommends investors ensure they have access to cash. He recommends selling into rallies, in other words, when buyers start coming into the market, sell off some of your holdings, in order to be able to buy shares more cheaply later. His primary concern with the current economic uncertainty is that in previous downturns, the issues were financial, now they are driven by political, security and economic fears.

Posted in Market commentary

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