Green shoots in SA shares.

Towards the end of September we mentioned that there was a cautious optimism with regard to South African shares and even the SA rand. Now, at the end of October, we have seen some remarkable recoveries in the share price of some companies, such as:

So, we see a strong recovery in some of the companies that rely on the growth of the South African economy for their well-being, like banks and retailers, but this is off a very low base. Year to date the banking sector in South Africa is still down 35% and the retailers down 29%. Property is still struggling and year to date that sector is down 47%. Compare this to gold shares, up 83% and platinum shares, up 29% for the year. If we take the comparison international, we can see that even in the USA the choice of sector was all-important. The broader S&P 500 Index is up 6% while the technology index called the Nasdaq is up 28%. We can expand this even further and ask what the better investment would have been; SA shares or US shares. Now we must bring in the good old currency valuation. The rand has strengthened a lot over the last few months but is still down around 16% to the US$. So even if you invested in the broader S&P 500 Index, in rand terms you would still be up 22% for the year, compared to the JSE’s -3%.

What to do now is the important question. The answer will depend a lot on your current situation. If you were on the right side of the trade and had exposure to technology shares in the US, your portfolio will probably have grown to a top-heavy situation in that sector and it might be prudent to rebalance the portfolio. Where do you take the money you get from rebalancing your tech stocks? Well, the logical answer will be where you have underperformed and that is back to the rand and SA-orientated sectors like retailers, banks, schools, media, etc.

At JWR we leave these decisions mainly in the hands of our fund managers and there is definitely a rotation by some of them into SA Inc. companies. There are many good things happening in SA right now, driven by a political will to decrease corruption and state expenditure and grow the economy. Unfortunately, our government is still distrusted to a large extent after ten years of looting. We do not know whether we will be able to pull this ox wagon out of the mud, but if we do, there is a lot of potential in SA shares. So our motto here at JWR remains, “Diversify and conquer!”