Johannesburg - For the past decade, the JSE's property unit trusts and resources index offered average annual returns of 22.8% and 20.8% respectively, as opposed to cash earnings' 10.2% and 12.7% for the financial index.
Fin24.com polled leading asset managers and market commentators to find what they consider the best assets for the following decade. Here's what they came up with.
Karl Leinberger, chief investment officer at Coronation Fund Managers
"In the next 10 years we expect global equities to do much better than local equities," said Leinberger.
South African equities have greatly outperformed their global counterparts in the past decade. The JSE All-share index returned 17.3% compounded per annum, compared to 2% from global stocks during the period.
Leinberger said the South African economy's sterling performance was spurred on by the commodity boom and post-democracy changes, enabling SA demographics to normalise and a new middle class to emerge. "Global equities were expensive 10 years ago; in that time South Africa was cheap and we've had a strong economy, so investment returns were very high here," he said.
He said stocks in many local companies are pricey. On the other hand, global equities are now inexpensive.
International companies listed on the JSE - like SABMiller, Richemont and British American Tobacco (BAT) - will stand to benefit from this, Leinberger said. "All three of these companies are top 10 holdings in our funds."
He added property's bullish era will end in the 10 years. "Property yields are much higher now [paying a higher price] and the asset class has given a very strong earnings growth in the past decade," said Leinberger. "We don't think it will achieve such earnings growth in the next decade."
Abdul Davids, head of research at Kagiso Asset Management
In the context of a growing SA economy and taking into account the level of earnings together with earnings growth prospects, Davids believes pharmaceuticals, mobile telecommunications, oil and food producers have the potential to offer the best returns over the next decade.
He said stocks like Cipla Medpro and Aspen Pharmacare will benefit as "the global pharmaceutical market is growing due to an ageing population". In addition, this is typically a defensive industry, according to Davids.
The lure of cellphone operators comes from continued development in the industry. Fixed line telecommunication companies are expected to be unpopular. "The world has moved on from fixed line to mobile," said Davids.
Davids commented "the imminent global oil shortage will again come to the fore", ensuring good returns for cleaner and alternative fuel companies when economic growth returns. He mentioned Sasol as one of the companies expected to rake in profits.
Tongaat Hulett and Illovo Sugar also stand to benefit, according to Davids, as extreme weather conditions are increasing due to global warming. This will lead to higher food prices which should benefit the agricultural sector.
Printing and publishing groups, together with the forestry and paper sector, are also expected to be out of favour. "The internet has virtually killed off the printing industry," Davids said.
He is less bullish on mining stocks. "They [mining stocks] have had a major bull run for the last seven years, mainly due to China's growth. We expect this to slow down and put pressure on commodity prices, especially base metal prices like copper," Davids said.
Paul Theron, CEO of Vestact
Theron, like Davids, said he favoured telecoms, specifically MTN.
Additionally, he said commodity companies should prosper thanks to rising incomes in developing countries, especially those in Asia. BHP Billiton is one such stock.
Concurring with Davids, Theron said paper shares like Sappi could be ostracised due to declining newspaper and office paper sales. Also, he pointed out that the toll of rising sin taxes will be felt by tobacco stocks like BAT.
- Fin24.com