'No free lunch' for investors

Johannesburg - Equities investors used to double-digit returns will need to scale down their expectations in coming years.

That's the view of Peter Brooke, head of macro strategy at the Old Mutual Investment Group SA (Omigsa), who addressed the media on Tuesday.

"There isn't a free lunch in any asset class," said Brooke as he cautioned investors to increase their savings contributions, while winding in their return expectations.

Brooke's view is that local equities and listed property are likely to return about 6.5% per annum over the next five years, while the yield for bonds and cash should be about 3%.

Omigsa believes that equities will have limited growth potential in the next five years, while a high level of vacancies will weigh on the commercial property sector.

Brooks said investors shouldn't get too optimistic when companies report good earnings increases this year, as this would be from a low base.

Resources strong at present

Asset managers at Stanlib were more upbeat about the earnings prospects for stocks.

Paul Hansen, investment adviser at Stanlib, said if earnings for 2010 were to grow at 15%, the market at present levels will have a forward price-earnings ratio of 14, which still offers some value.

Hansen said Stanlib expected average earnings growth of about 20%, with mining and resource shares being good performers.

"So while thousands in SA continue to wait for a correction in our stock market - and of course it could happen at any time - one must realise that the economic cycle is early in its recovery phase. The uptrend remains intact, which is also a key."

Stanlib said the interest of foreign investors, who bought a net of R1bn shares on the JSE, should also be noted.

For investors seeking international exposure, Omigsa sees offshore equities having a slightly better return of about 7%, However, this performance may be affected by the movement of the rand against the dollar.

- Fin24