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South African stocks experienced a tumultuous 2015 with the benchmark JSE All Share Index having lost all its gains and ending the year off where it started. This bodes ill for investors with a large exposure to SA stocks, especially pensioners and those saving up for a rainy day. finweek spoke to top fund managers on which domestic stocks hold value for 2016.
Fund Manager: Andrew Canter
Chief investment officer of Futuregrowth Asset Management
Fixed interest assets, such as bonds, cash deposits and other interest bearing instruments, are dependent on the Reserve Bank’s interest rate decisions and monetary policy sets the course for these asset types.
Andrew Canter, chief investment officer at Futuregrowth Asset Management, expects the benchmark R186 government bond, which matures in 10 years’ time, to remain around its current yield of around 9.5% this year.
“The political turmoil of the last couple of weeks is going to force the government to show real fiscal rectitude and start reining in spending,” Canter says.
“Unfortunately it means they’ll probably raise taxes ?as well.” The essence is that the SA government should avoid a credit rating downgrade, Canter says.
Following the sacking of former finance minister Nhlanhla Nene at the start of December last year the major credit ratings agencies have warned SA that it could lose its coveted investment-grade rating, which would increase the borrowing costs of the government.
“The Treasury and government will work very hard to avoid being downgraded on international credit ratings,” says Canter. “The cost, if they get downgraded, would be very high.”
In the meantime, Canter expects the Reserve Bank to raise its benchmark repurchase rate “sooner rather than later”.
He also foresees that the incremental increases will be higher than that of the Federal Reserve as the local inflation outlook has changed.
Canter expects inflation to reach 7% on average this year with the Reserve Bank increasing the repurchase rate to 7.5% from its current 6.25%, taking the prime lending rate to 11%.
Cash will probably return 6.75% this year, Canter says.
This is an excerpt from an article that originally appeared in the 14 January 2016 edition of finweek. For more buy and download the magazine here.
