Cash, Cows and Cash Cows Agriculture
October 26, 2016
And the name of the game is: Sector Rotation
November 12, 2016
Markets are stressed and conditions vexing. Many investors have thrown in the towel!
Why are enterprises finding it so difficult to grow?
There are several reasons and some notable trends.
The basic economic conundrum of limited resources confronted by unlimited demands is compounded by massive increases in population. All major economies have tackled this problem, misguidedly, by trying to debase their currencies. Uncontrolled expenditure and never ending growth in government simply squeezes out the private sector. And of course the private sector is the creator of jobs and growth.
The next step governments are bound to embark on is massive amounts of fiscal stimulus, monetary stimulus now exhausted, e.g. the 16 billion pound expansion of Heathrow. Given Brexit, what are the chances of this showing a meaningful return on investment? Does anyone know of Madrid’s second airport, mothballed and never used?
Investment markets have been trending flat for years and a decisive break is long overdue. It is my view that we are nearing the end of this stage.
If stocks can’t break out of this trading range, they are going to fall under their own weight. If growth rates don’t improve, the gravitational pull will become overpowering.
The JSE in particular is a very artificial market without underlying strength and breadth. This market has been boosted by the weak rand and the corresponding surge in rand hedge stocks. If you strip out the effect of shares like Naspers, the All Share Index and the ALSI 40 show a very different picture.
The future is clouded by other factors. Interest rates in South Africa are still high, economic growth is decelerating (I believe we are now in a recession), certainly companies are experiencing a major earnings recession, and the market is expensively priced.
Investors need to be very selective and stock picking is vitally important. Mid Caps look interesting and sector rotation still works. The capital allocation decision is still most important.
On a positive note there are some promising investment prospects. The new listing pipeline is also finally showing some signs of life, so this is something to look forward to.
If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a confidential consultation.
