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An early method of testing the equity market waters is to consider where the market stands relative to long-term historical performance. And to see what, if anything, the (often-deceptive) trend is telling investors.
Look to the future
Looking at the performance of the South African market as measured by the FTSE/JSE index, an investor who bought shares before March 2009 would be delighted.
But investors need to look forward. Future expectations, while not a perfect indicator, are often in the price of equities.
What does the recent strong and rising (a 13.8% increase just for the month of March) trend in equity prices tell professional investors?
John Biccard, who manages the Investec Value fund, sees signs of SA’s market overheating.
“The South African market is now (mid-April) 10% off its all-time high in 2008. It’s increasingly harder to find anything worth buying.”
Interest rate effect
Biccard is a top-rated value investor and it should be noted value investing is a style that at times runs contrary to what other asset managers are doing.
Consequently, value investors often underperform the market and their peers for a while, followed by outperformance if they choose the right undervalued shares.
That’s what Biccard is currently trying to do.
He also notes that on a price to earnings multiple of 18 times the market is expensive – also indicated through a dividend yield of around 2% compared with the long-term average of 4.5%.
“I think everything is being driven by low interest rates – virtually zero in the United States and even low here against the long-term average, he said.
"So there’s no room for error now.”
Predictors of growth
Matt Brenzel, portfolio manager at Cadiz Asset Management, credits the strong performance of the SA market in March with the unexpected 50 basis points cut in interest rates.
But what are share prices telling investors now?
“Equity markets are predictors of the future macro environment," said Brenzel.
"Hence share prices run ahead of improvements in, for example, GDP and resultant corporate profits."
- Finweek
Look to the future
Looking at the performance of the South African market as measured by the FTSE/JSE index, an investor who bought shares before March 2009 would be delighted.
But investors need to look forward. Future expectations, while not a perfect indicator, are often in the price of equities.
What does the recent strong and rising (a 13.8% increase just for the month of March) trend in equity prices tell professional investors?
John Biccard, who manages the Investec Value fund, sees signs of SA’s market overheating.
“The South African market is now (mid-April) 10% off its all-time high in 2008. It’s increasingly harder to find anything worth buying.”
Interest rate effect
Biccard is a top-rated value investor and it should be noted value investing is a style that at times runs contrary to what other asset managers are doing.
Consequently, value investors often underperform the market and their peers for a while, followed by outperformance if they choose the right undervalued shares.
That’s what Biccard is currently trying to do.
He also notes that on a price to earnings multiple of 18 times the market is expensive – also indicated through a dividend yield of around 2% compared with the long-term average of 4.5%.
“I think everything is being driven by low interest rates – virtually zero in the United States and even low here against the long-term average, he said.
"So there’s no room for error now.”
Predictors of growth
Matt Brenzel, portfolio manager at Cadiz Asset Management, credits the strong performance of the SA market in March with the unexpected 50 basis points cut in interest rates.
But what are share prices telling investors now?
“Equity markets are predictors of the future macro environment," said Brenzel.
"Hence share prices run ahead of improvements in, for example, GDP and resultant corporate profits."
- Finweek
