Advertise Here
Icon

Directory

IconActuaries
IconAdministration Outsourcing
IconAsset Managers
IconAssociations & Institutes
IconAuditors
IconBanking
IconBBBEE Consulting and Verification Agencies
IconBusiness Chambers
IconBusiness Process Management
IconBusiness Process Outsourcing
IconCompliance
IconConsumer Protection
IconCorporate Governance
IconCredit Bureaus
IconCurrencies
IconDebit Order Collection Facilities
IconEducation and Training
IconFAIS
IconHuman Resources
IconInformation Technology and Software Partners
IconInvestment Consulting
IconInvestment Fund Managers
IconLegal
IconLISPs
IconListed Equities
IconOmbud
IconParticipation Bond Managers
IconPolicy Administration
IconPolicy Trading
IconProperty Unit Trusts (PUTS)
IconPublications
IconRegulatory Authorities
IconStock Exchange
IconSurveys and Research
IconTraining Courses & Workshops
IconUnit Trust Fund Managers
IconWellness Programs
Image
  Subscribe To »

What SA investors can learn from the case of Greek government bonds

Published

2019

Wed

31

Jul

Justin Floor, PSG Asset Management

 

Ten-year Greek government bonds – deemed ‘uninvestable’ at the height of the eurozone crisis – are currently yielding 2.2%. What makes this remarkable is firstly that yields in Greece are now only slightly higher than those in the US, meaning investors effectively require the same compensation to lend to the Greek and US governments. More interesting is that the structural concerns that saw Greek 10-year yields spike to 35% in early 2012 have not been resolved; only marginally improved.

 

This serves as a timely reminder to South African investors that things are not always as bad as they seem – and that even a small improvement to seemingly dire conditions can spur a strong pick-up in investment returns.

 

There are striking similarities between Greece in the early 2010s and South Africa now

In 2011/2012, Greece faced one of its darkest times in recent history: it was at the height of its debt crisis and on the brink of exiting the European Union. The similarities to current conditions in South Africa went beyond worryingly high fiscal debt levels. In addition, Greece was experiencing endemic corruption, low growth and inflation, slow infrastructure development and high levels of emigration and unemployment. Deep despair and pessimism were prevalent in society and factored into asset prices, with citizens and investors alike believing there was little hope.

 

The point of maximum pessimism in Greece proved to be the best time to invest

Had you invested in 10-year Greek government bonds at their low point in May 2012, you would have made your money back over nine times, with a return of 40% per year, as shown in the graph below.

 

Graph: 10-year Greek government bonds have returned 40% per year since May 2012

 

 

Source: PSG Asset Management, Bloomberg

 

Greek asset prices compensated investors for structural issues and weak sentiment

Many of Greece’s structural concerns remain unresolved – and while some have improved, others have worsened. So why have asset prices normalised? Primarily, because they were simply too cheap. Prices factored in a permanent worst-case scenario, with no possibility of improvement. The slightest restoration of balance – the realisation that while times are tough, they may not be all-out hopeless – saw prices return to more realistic levels.

 

It is impossible to predict transition points

While many market commentators agree that South African assets appear to be offering good value at current valuation levels, most are waiting for conditions to improve before deploying capital. However, no one can predict when the turning point will be. We only know that history has shown time and again that sellers eventually dry up and buyers realise their negativity is overstated. When this happens, asset prices can normalise quite dramatically.

 

Could South Africa follow Greece’s example?

As in Greece in 2012, we believe that South African investors are focusing solely on the country’s structural issues, and not on asset prices. However, with excessive pessimism priced in, many asset prices are compensating for the issues at hand. Various factors contributed to prices in Greece normalising, including the possibility of support from the European Central Bank. South Africa’s circumstances are clearly different. However, what this has shown is that when prices get too low, the odds move further into investors’ favour. Historically, times like these have proven to be excellent buying opportunities.

 

 
Source: Andrea Kirk cdcom
 
« Back to previous page Print this page » |
 

Breaking News »

Coface South Africa Champions at the 2019 Gender Mainstreaming Awards

Coface South Africa, the international credit insurer, was the overall Gender Mainstreaming Champion at the 2019 Awards. Winning four different awards: The award for a Non-JSE listed company in the category ...
Read More »

  

Tial Turning Twenty

As Tial celebrates 20 years, it is time to reflect on what has been an incredible journey that has led to us being the successful entity we are today. It is incumbent on us to say a very big thank you to all of ...
Read More »

  

Still hope for a New Dawn?

With GDP up 3. 1% in the second quarter of 2019 (seasonally adjusted, annualised) and 0. 9% for the year to June 2019, the markets have responded positively. The rand appreciated by some 10 cents on publication ...
Read More »

  

How often should employers review their umbrella fund provider?

The 2019 Sanlam Benchmark Survey found that one-third of employers using umbrella funds have never reviewed their provider, while less than half of respondents conducted a review of their provider every one to ...
Read More »

 

More News »

Image

Healthcare »

Image

Life »

Image

Retirement »

Image

Short-term »

Advertise Here
Image
Image
Image
Advertise Here

From The Glossary »

Icon

Top-down equity management style:

Investment style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding various sectors of the financial markets and various industries. The bottom-up manager, in contrast, selects specific securities within the particular sectors.
More Definitions »

 

Advertise

 

eZine

 

Contact IG

 

Media Pack

 

RSS Feeds

By using this website you agree to the Terms of Use.
Copyright © Insurance Gateway (Pty) Ltd 2004 - 2019. All Rights Reserved.