Getting a sense of 2019 | Fin24
 
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Getting a sense of 2019

Jan 17 2019 09:36
Schalk Louw

By the time I started writing my first column for 2019, we were already eight days into the new year. 

Things seemed to look a little more promising than they did at the end of 2018. 

I also took some time to read through the 2019 investment forecasts of some of the world’s largest investment companies. 

Although these may have left many investors very confused, there were quite a few common themes that emerged.

With the healthy recede in global markets (especially the US), global share forecasts for 2019 are looking quite good and it will remain my investment of choice for 2019. 

I’m referring to these receding markets as “healthy”, simply because the nearly 15% decline in the S&P 500, from its peaks last year, caused the Shiller P/E (price-to-earnings ratio) to drop from 33 in September 2018 to its current level of 27.6. 

Although this is still on the higher side, it’s lower than it was at the beginning of 2017 and much closer to levels around the beginning of 2015. 

Opinions regarding forecasts for the US remain divided, but there are some investment companies that feel prospects for the US in 2019 remain good. 

Growth in earnings of US companies may not be as strong as in 2018, but it should still be good enough to justify exposure to US markets – where investment houses are positive on outlook for this market. 

Sectors highlighted in more than three reports, were the technology, healthcare and financial sectors. 

Investors remain wary of European and British markets, especially since Brexit is now gaining momentum.

Emerging markets are still attracting investors’ attention. 

In dollar terms, the FTSE Emerging Market Index has declined by 0.63% in the last five years, while the FTSE World Index has grown by 2.27% over the same period, something which I think created many investment opportunities. 

But rather than investing directly in shares in emerging markets, why not consider an international exchange-traded funds (ETF) like the Vanguard FTSE Emerging Markets ETF, which offers you exposure to all emerging markets around the world? (Remember to discuss the impact of international instruments on your estate with your adviser before you decide to invest.)

If the US and China’s trade war doesn’t intensify, China will probably remain the preferred choice among emerging markets, with the technology/internet sector highlighted in this area. 

Even following recent declines, US internet companies are still trading 6% higher than at the end of 2017 (in dollar terms). 

Over the same period, however, we have seen Chinese internet companies lose up to 36% of their value in dollar terms due to the trade war. For those looking for investment opportunities in this area, you probably won’t have to look much further than the largest Chinese internet company, Tencent. 

Locally, investors could also consider Naspers* as an entry point into this market.

Japan was also highlighted in several reports as an attractive option among emerging markets. 

No different to China, rather than to look for individual shares in an unfamiliar country such as Japan, it may be wiser to consider the largest ETF – the iShares MSCI Japan ETF. 

The South African stock market also stands out as a value area, with growth expected to return to the market in 2019. 

The biggest concerns and risks remain the upcoming elections (and the possibility of accompanying political unrest) and the possible implementation of reforms. 

My personal preferences for value shares locally are African Rainbow Minerals, Coronation, Investec PLC, Mondi and Tsogo Sun. 

Considering forecasts for China as mentioned above, I won’t be too uncomfortable in adding Naspers to my list at current levels of around R2 800.

To briefly conclude, most reports emphasise that interest rates in the US will probably cause growth to slow down in general, and that markets will remain volatile. 

Most reports, however, say that shares should perform better than bonds and property shares in 2019, and with a negative year like 2018 now behind us, I do hope they are right. 

Schalk Graph

Schalk Louw is a portfolio manager at PSG Wealth. 

*finweek is a publication of Media24, a subsidiary of Naspers.

This article originally appeared in the 24 January edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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