The tide is turning for South African investment, experts at the Think Investing Convention 2024 held at the JSE said yesterday.
They agreed it was time for SA markets to thrive, not strive, with higher returns on local equities versus US equities
Tobie van Heerden, the CEO of 10X Investments, comparing the local asset management industry to the Springboks performance in the Rugby World Cup, shared the analogy of how the team was winning by 1 point in games and just surviving, but it came out the other side and was now thriving. Now too was the time for local markets to thrive.
South Africa’s elections and the Government of National Unity (GNU) was a turning point for the country as regards investment, according to Van Heerden.
Experts detailed how trillions of rands foreign direct investment had left SA shores before the elections and new Government of National Unity (GNU). Local equities since GNU have been bullish.
Van Heerden said 2024 has a been a tumultuous year with the war in Israel, while the US has been experiencing hurricanes and elections and China has gone through a massive up and down.
"South Africa is not isolated in that. I would say our (business/confidence) uncertainty has gone through our peak and we are coming out of the other side now. “
He said international sentiment was looking better for South Africa amid global volatility.
Valdene Reddy, the director of Capital Markets at the JSE, said, “The sentiment is certainly shifting to become a lot more positive, and there's actual data points on the fundamentals that's shifting as well. It is a ripe opportunity now for South Africa to lead.”
Reddy said she had seen a lot more public private sector accountability that manifested into more confidence into the investment market.
Talking about market direction and asset allocation, the audience, which included investment players, were bullish on emerging markets, followed by local equities, but pivoted away from US markets and bonds.
Anton Eser, the chief investment officer at 10X Investments, said research using the CAPE ratio showed that the growth outlook for local equity returns was higher than for US equities.
The CAPE ratio uses real earnings per share over a 10-year period to smooth out fluctuations in corporate profits. A high CAPE ratio means stocks are overvalued, and returns will likely be poor. In contrast, whenever the ratio is low, it means the stocks are undervalued, and returns will likely be good.
He said in the past couple of days the US equities had reached a near record high CAPE of 37. The tailwinds of US growth of the past 30 years were set to become headwinds.
So while one had seen US equities returns of 7.9% in the past three-and-a-half decades, this was unlikely to continue. Looking at 10-year real return estimates for the S&P 500, most scenarios pointed to real returns of only up to 2% real growth,. The long-term real returns for US equities were negative, Eser said.
Christopher Eddy, the head of Multi-Asset Funds at 10X Investments, presented a bullish case for South African equities.
He said while SA equities were trading at discounted valuations since 2004 - due to a decline in South Africa’s economic growth and rising interest rates - post GNU, there had been a strong equity rally over a short space in time. Shares on the All Share index were now trading at a 13% discount (CAPE), at multiples of 14 times earnings.
"The long-term base case has South African equities delivering a real return of close to 7%. If economic growth and corporate profits pick up those returns could be significantly higher, Eddy said.
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