ASISA stats Q4 – trend into asset allocation continues

Jeremy Gardiner, director at Investec Asset Management, shares his insights following the release of Asisa’s Q4 statistics

The fourth quarter of 2012 saw the trend towards asset allocation funds continue with a net R18.7 billion allocated in this direction. This once again highlights the confusion experienced by investors at the moment, where markets ignore negative fundamentals and continue to trend upwards.

Of course any environment where markets are gradually rising (like the JSE, where the All Share Index produced a total return of 27% in 2012) is going to attract the attention of investors. It therefore comes as no surprise that we also saw a small pick-up in flows into equity funds.

We expect these trends to continue, as a healing world should mean less volatility coupled with increased risk-taking, which means equities should continue to gradually gain favour.

This definitely points to a change in the mood among investors, as confirmed by a survey of South African institutional investors conducted by the Bank of America Merrill Lynch, which indicated that sentiment towards equities is improving. 69% of respondents were equity bulls on a 12-month basis at the end of last year versus 38% of respondents bullish on equities in mid-2012.

Another trend which will probably gain traction from here on is the switch to offshore investment as investors become increasingly concerned about the future of the rand. Sadly, this is not the right time for such a strategy – the right time would have been two years ago when the rand was trading in the region of R6,60 to the dollar.

On the whole, we believe 2013 will be another strong year for equities, although not to the extent of returns experienced last year. Certainly the environment this year should be in favour of emerging markets and emerging market currencies. We as a country, however, need to understand the importance of creating an environment that is attractive to both short-term and long-term capital if we are going to take our fair share of the flows. We don’t have an automatic invitation to the party and if we continue displaying hostility towards foreign investment, as has been evidenced over the past six months, we must not be surprised if the rand, growth and jobs collapse. Investors have a lot of options in developing markets, many of which are growing faster and have a more friendly business environment than us.