If you are a regular watcher of the business channels on TV, such as CNBC or Bloomberg, you will notice how the market commentators extrapolate whatever the investment mood is at the moment, into the future. At the moment, for example, everything is rosy and of course they “told you so”. When things turn bad, all of them “saw it coming” and sold their positions some time ago. This is, of course, just a way to fill their space on the airwaves and not something serious longer-term investors pay much attention to.
It is, however, true that investors with a positive outlook will always be right over the longer term because equities as an asset class will always rise in value. Currently, markets in the USA are once again at all-time highs. The world is embracing the good news and turning its back on negativity. The South African JSE All Share index is positive year to date, and so is almost every major index in the world.
Naspers is having a fantastic run and is up 30% year to date, of which 27% came in the last month. This is obviously driven by its investment in the Chinese company, Tencent, which is up 35% year to date. Prosus has had similar returns and then there is Anglo American, who woke up and gained 22% over the last month. The recovery in share prices is broader than just the big names and we see even the smaller companies turning positive.
This sudden improvement in sentiment can be ascribed to the lower inflation expectations in the USA and if we look at South Africa specifically, some expectations that the elections will yield a favourable outcome with the ANC losing its outright majority, but still getting more than 43% of the vote. We can also see the rand strengthening relative to the US$ and being back where it started the year. Two things may be behind this positive move: the expectation of interest rate cuts in the USA and an improving infrastructure environment in South Africa.
Eskom has been a major drag on the profitability of our companies over the last few years. There are many conspiracy theories around the reason why we haven’t experienced any loadshedding over the last fifty days, and most of them suggest that it is a ploy by the ANC to keep the lights on before the election to win some much-needed votes. It is said that this avoidance of loadshedding is achieved by burning an insane amount of diesel and we will see loadshedding return after 29 May. There are, however, stats that show that this is not the case and that Eskom is in much better shape than a few months ago. We can only hope.
Whatever might happen in the months to come, it is heartening to see everything moving in the right direction for a change and we might as well enjoy the moment.
