Watch out for a phased equity top-up â€“ STANLIB
LOOK out for a phased equity top-up over the next two months â€“ it could be a â€˜smart playâ€™ for investors who seek long-term capital growth by buying into temporary weakness.
The prediction comes from Paul Hansen, Director of Retail Investing at STANLIB, South Africaâ€™s largest unit trust company and marketer of the countryâ€™s widest range of collective investment products.
Hansen bases the forecast on the significant level of loss recently suffered by key sectors of the JSE and the fact that many private investors missed out on the early stages of the local equity bull-run and then hesitated to get back into the market. However, they may now see a value opportunity.
He explains: â€œIn the three years to last May, the JSE achieved 200% growth. Many investors were late getting into equities or did not get into the market at all, expecting a correction that never came â€¦ until May.
â€œThese investors have been underweight in a key asset class for far too long. They could well regard current weakness as an opportunity rather than a threat; in which case the smart play would be to rebalance their portfolios, paying particular attention to the equity sectors that have recently taken some big hits.
â€A phased approach is indicated. Itâ€™s usually a good idea and many of the investors who stayed on the equity sidelines for too long fall into the conservative or moderately conservative risk categories.â€
In recent weeks, some sectors made significant retreats, for instance:
SA listed property index -26%
Consumer services -22%
Mid-cap shares -16%
Small-cap shares -13%
At one stage, the JSE All Share Index dipped 17%, though it later recovered to -9%.
Hansen believes the buying-into-weakness ploy may have two or three months to run. This is the period that interest rate uncertainty is expected to persist.
He adds: â€œThere is no absolute consensus, but most economists incline to the view that we could see further hikes in local interest rates.
â€œOne emerging market â€“ Brazil â€“ recently cut rates, though its trade surplus puts it into a special category. Others, including South Africa, appear to be taking a cautious approach. America may, or may not, ease up rates for one last time.
â€œWe will have greater clarity in two or three monthsâ€™ time. As long as interest rate uncertainty exists, we can expect a degree of equity market softness, creating the opportunity to buy into weakness.â€
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