Wednesday, January 26

Better investment opportunities abroad than at the JSE – Centaur

The JSE’s strong returns over the past year have rewarded managers who have taken a more positive view of local equities. However, Centaur Asset Management CIO Roger Williams believes that the best may have been left behind.

“We are seeing a new rating because of low interest rates and because a base effect is taking place,” Williams said during a BCI webinar on Wednesday. “But we don’t see a second stage.”


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His view is that while South Africa has enjoyed a series of short-term tailwinds, the long-term outlook remains disappointing.

Small steps forward

“If we think about where we were three years ago, I think good policy progress has been made,” said Williams, who heads the Flexible fund Centaur BCI.

This includes some moderation in public sector wages, reforms in the energy sector, tentative steps on infrastructure spending, and more to combat corruption.

“We have also received stimulus in the form of lower interest rates and strong terms of trade. This has been thanks to the boom in raw materials such as iron ore and platinum group metals (PGM) ”.

This has boosted confidence among local CEOs and, coupled with a positive base effect, has resulted in a strong equity market since the last quarter of 2020.

The base is weak

However, Williams is wary of the sustainability of this improvement.

“In the medium term, the risk is that the economic base is very weak,” he said.

It is mainly fueled by high commodity prices, which are notoriously cyclical. He added that economic growth will be strong this year at around 4%, but that comes from a low base. Growth from 2022 is likely to return to between 1% and 2%.

With 1% growth, South Africa’s GDP will still not return to 2019 levels by 2024.

“Our take on economic growth is not particularly exciting,” Williams said. “There are still a lot of structural impediments and I don’t think the government has done enough to make South Africa an attractive place.

‘I also think that the base is weak because we depend on the prices of the resources. We are not even seeing enough of the government to take advantage of that. We should export more iron ore, for example, but there is no initiative to increase rail capacity. ”

Marginal revaluation

So while local equity valuations look attractive, Williams believes there is still not enough strength in the local economy to unlock that value.

‘For P / Es [price-to-earnings ratios] For the JSE to be much higher, we need to see more growth, which we don’t see yet, ”Williams said. “There is a marginal revaluation story going on, but once it hits, we think the returns won’t be that strong.”

Mel Meltzer, director of Platinum Portfolios, expressed similar sentiments.

“At the local level, we find it very difficult to invest in the environment,” he said. “We find it very difficult to find companies that approve.

“The South African shares that we own are all multinational,” he added. ‘Ninety One, for example, is a global fund management house, so it protects us against risks. But we found SA inc. quite difficult. It is too transitory. You can buy something today, but you will have to sell it in six months. And that’s not our style. ‘

Meltzer, who manages the Platinum BCI Worldwide flexible fundHe added that this does not mean that they reject South African companies. However, the operating environment for them means that opportunities are better internationally.

Pragmatic approach

“We would buy a company, either local or offshore, depending on how our process goes through,” Meltzer said. ‘For example, we have seen Spar, but when we compare it to Walmart, Walmart comes out better.

“We don’t realize where we are investing or what the asset allocation is. We will buy companies when they are trading below fair value and when they make sense to us.

“Apart from one or two stocks, most of the companies we buy are multinationals,” Meltzer added. ‘We believe that they have the ability to allocate capital better than we do. These companies earn income in different currencies around the world, so they cover the portfolio in its diversity. ‘

Williams believes that returns in the local market are therefore likely to be less broad in the coming years.


“Only high-quality companies with proper management we believe are going to perform,” Williams said. ‘Internationally, you are seeing much better growth.

‘Therefore, I prefer to pay for better growth and lower risk. I do not see exceptional investment opportunities in the JSE because I am not excited about the prospects. There are certain South African companies that have a niche where we believe they can gain market share. But I’m not terribly optimistic, despite the low ratings. ‘

During the five years to the end of July, the Centaur BCI Flexible fund posted an annualized profit of 10.4% according to Morningstar. This is ahead of the FTSE / JSE All Share Index gain of 8.8% per annum over this period, and the average performance of funds in the flexible multi-asset category of the South African Savings and Investment Association (Asisa ) South Africa 4.9%.

The Platinum BCI Worldwide Flexible fund produced an annualized return of 9.2% over the past five years, according to Morningstar. That compares with an average return for funds in Asisa’s worldwide flexible multi-asset category of 7.4% per annum.

Patrick Cairns is a South African editor at Citywire, providing knowledge and information for professional investors around the world.

This article first appeared on Citywire South Africa here and republished with permission.

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