28 February 2011 concluded with a good bull run of almost 5 months in both local and international share markets. Even the troubles brewing in North Africa towards the end of that month had a minimal impact on investor optimisim. The recovery since 6 March 2009 has been especially gratifying for those who stayed the course after the global meltdown and even better for those who moved cash into the markets at that time. [See the index graph on the left].
A year ago we expressed some caution about shares after their rapid recovery made up to that point in time. Interestingly the period that followed mirrored that caution until the last quarter or so when shares moved away from the feelings of uncertainty caused by fears of a double dip recession predicted by several commentators [especially the news-hounds on TV]. However, the results released by international companies beat forecasts and restored faith in growing earnings. Clearly the intervention by Governments in the countries worst affected seemed to have paid off and averted a repeat of the desperately slow recovery seen in the 1930’s.
To use a colloquial term – “local has been lekker” for our South African share market for the decade between 2000 and 2010, while international shares took a pounding in the 2008 collapse, wiping out impressive gains they had made before the banking crisis. The graph to the right clearly shows how the 1st World share markets suffered over that decade. Note that each index is measured in its domestic currency. Returns in ZAR were quite a bit better – but still nowhere near the returns to be had in the local market. Those invested in local balanced or flexible funds may have noticed that the fund managers, without exception, have been shifting as much as they are allowed into international shares in the past year.
No doubt they are taking advantage of our strong currency and further relaxations in exchange controls – however our local fund managers are clearly looking for more and would not risk a simple play on the currency. They have been saying for a while that they see better value in international stocks than they do in our own market which many regard as comparatively expensive.
If we examine the previous decade, from 1990 to 2000 and compare it to our local market, it is easy to see how much better it was then to invest internationally rather than locally for the South African investor. Our market returned only 167.8% against the star runner of Europe with 1.106,76% followed by the USA with 967,3%. Of course fund managers are mindful of the pitfalls in America and Europe – so they select companies which are likely to benefit from what is expected to happen in the East over the next decade. Many local commentatoros believe that international investments will once again be the place to be in the period 2010 to 2020, a view we share at Finlaw.
North Africa and Japan …
While we have seen some global turmoil following seismic events in both these regions, the former caused by decades of misrule and the latter by Mother Earth, the markets have largely shrugged them off after several days of panic selling. The events are still unfolding with international intervention in Libya and persistent concern over radiation from the problem nuclear facilities in Japan. If anything should have tripped the markets into the feared double dip mentioned earlier – then surely these events should have? Even the Japanese market, after an early drop, has recovered ground.
We trust you will draw comfort from your enclosed February 2011 reviews. Please don’t hesitate to contact Rowan or myself if there is anything we can do for you about your existing or planned investments. The strong rand presents a good opportunity for exporting some of your wealth. Now is the time to do so – not when the Rand enters a free fall period!
John Wallace – March 2011.