Johannesburg - Beware of buying stocks simply for fear of being left behind in a bull market, as real value on the JSE is hard to find.
This is the warning of Piet Viljoen, head of asset management group RE:CM, who recently registered caution on equity prospects for 2010 in a note to clients.
"We [RE:CM] now find ourselves once again conservatively positioned in spite of our enthusiasm for shares a mere nine months ago," said Viljoen. Since March, the All-share index rose by more than 50%, contrary to the performance of the real economy which only moved out of a recession in the third quarter.
"Right now, it seems reactive investors are worrying about being left behind in a bull market, and are reacting to increasing stock prices by buying more," Viljoen said. "This has the consequence of pushing asset prices to levels where value is - once again - hard to find."
Viljoen said investors should consider companies' dividend yields to determine where their share prices may head in 2010, as well as the local economy's growth prospects. He does not hold an optimistic view on either of these.
The only way the South African market can generate better returns, according to Viljoen, is if gross domestic product growth reaches that of China, dividends grow faster than the real economy, or the market avoids falling back to its average dividend yield over the next 10 years. None of these, Viljoen said, is very likely.
In his view, the present situation offers a good opportunity to build up cash resources.
Good property bets in the Balkans
Head of Sanlam Investment Management (SIM) Kokkie Kooyman said investors need to be prudent about their asset allocation decisions in terms of both class and geography.
"If you want to worry, worry about your property investments in the UK, not South Africa," said Kooyman. He believes the high budget deficits of countries like Greece, the UK, Ireland and Spain are likely to weigh on Europe as a whole.
Kooyman is more upbeat about the growth prospects of South-East European countries such as Bulgaria, Slovenia and Macedonia, saying they offer good opportunities for property investors.
Other sectors which interest Kooyman include financial services players in India, Indonesia and other emerging markets.
"Unlike Europe, the question in India, Indonesia and Brazil almost seems to be 'what crisis?'," Kooyman said, adding these regions are experiencing annual growth rates of between 6% and 8%.
- Fin24.com