Is the glass half full?

It is common knowledge that there always are a buyer and a seller in commerce. The price of any commodity is determined by the relationship between what the buyer is prepared to pay as against what the seller is prepared to accept. The value of such an item is in the eye of the beholder and usually very subjective.We can see that disconnect between perceived value from different sides very clearly in the property market at the moment. For many years the coastal areas of the Western Cape have seen an abnormal increase in the prices paid for homes. Psychologically we humans tend to expect things to continue on the same trajectory, so the buyers of those homes at those overinflated prices expect to sell them for a further inflated price now, because they perceive that as the actual value of the house. Unfortunately, the current buyers have a different value in mind and they are aiming for a much lower price. The price agreed upon eventually is then much lower than what the seller wanted.

Currently we are seeing the same disconnect between price and value in the South African investment market. International investors are selling South African shares and bonds at an alarming rate. If you look at the chart below you will see that this rate is the highest in nineteen years.

Now, this situation can be interpreted in one of two ways: either the South African assets have become very cheap because sellers are desperate; or the price of the assets will be dropping still lower and you have to sell at these very low prices now before that happens. Perhaps we are forgetting that there are very good companies in South Africa that are swept along in this selling rush; and that the yields offered in our bonds are very attractive when you compare them to the low single-digit yields you can get in their international cousins.

Perhaps we are getting close to the turning point where the perceived value of our SA assets will again be higher than the prices they are trading at now.

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