Are you a bull or a bear?

The much talked about 2010 has arrived! The year is significant not only due to the world football event but also for an anticipated slow economic recovery after the global recession of the past year and a half.

Already South Africa has turned the corner and shown a meagre 0,9% year on year growth in Gross Domestic Product (GDP) in the third quarter of 2009. At the same time, the JSE’s all-share index has impressed with all inclusive growth of no less than 31,1% between March and September 2009. This figure includes dividend payments, but even when the growth is measured without these, the all-share index still grew by an impressive 27,8% during the same period, says Absa Investment Analyst Chris Gilmour of Absa Asset Management Private Clients.

Will the phenomenal growth continue in 2010?

Gilmour says while fund managers hastened to get back into the share market in 2009 in anticipation of a recovery, individual investors took more time to pluck up courage to invest in general equity funds. “Predictably, people tended to stick to money market investments and cash, where they felt safer after the markets collapsed in late 2008. But by having done so, individual investors didn’t get the full benefit of the whopping growth of the JSE last year. And this year, growth in equities is not expected to reach the same heights of 2009.”

Quoting the Financial Mail which forecasts growth of 8% in equities, Gilmour agrees and says equity growth is likely to be “anaemic” and not as good as last year. “The resources index performed very well and was up 33% in October,” he says. “This performance is linked to demand for iron ore, coal and commodities in rapidly growing countries such as China and India. One can expect this rate of growth to continue in 2010.”

Financial Mail said in an article Public Buys Equities Again dated 6 November 2009, that easy money (in equities) has been made in 2009 but this year investors can expect “a dull 8% return with volatility three times that.” However, this does not mean that Gilmour regards equities as a lost cause. He says provided an investor takes a long term view of five to ten years and has cash to spare, this is as good a time to buy equities as any other – on certain conditions. “The investor must use spare cash and spread the investment in instalments over time. In other words, reduce your risk by avoiding a lump sum investment all at once.”

According to Financial Mail, unit trust investors sunk R13,9bn into equity funds in 2009 of which R8,9bn was invested in the September quarter. Looking at other asset classes, Gilmour says the money market is only expected to become attractive again towards the end of 2010 when inflation could lead to interest rate increases. He expects government and corporate bonds to weaken as the year progresses and says the Satrix40 and other sub-indices are likely to follow the JSE’s all-share index during the course of 2010.

Gilmour confirmed that individual investors were very wary last year about a sustainable recovery on the stock market. He says investors “couldn’t be blamed” because they were told by commentators that a recovery would only reach 15% before falling back again.

What impact will the 2010 Football World Cup have on the markets?

Gilmour does not see that the event will have a far-reaching impact on the JSE other than in sectors such as tourism and transport. “City Lodge, for instance, should do well. They’d sold 90% of their rooms for 2010 in July last year already. Car hire companies such as Avis and Barlow World, and a company like Bidvest that does luggage handling, should do well. But this will be limited to small pockets of the economy, and only companies offering event-related goods and services,” according to Gilmour.