Expect upsurge in client calls after Q3 results – Absa

Financial advisers can expect an increase of client requests for a portfolio review after publication of third quarter results – not because of major areas of under performance, but because interpretation and insight will be in big demand as several developments appear to be reaching critical mass.

The early alert to advice professionals comes from Craig Pheiffer, general manager, investments, at Absa Investments, the Absa group’s fund management arm.

“Professional guidance will be required as quarterly results in many asset classes raise some interesting questions,” says Pheiffer. “Will current trends continue or is it time for profit-taking? Or perhaps investors who were initially cautious may now see signs of traction and look to take on more risk.

“Where are the numbers taking us? That’s a matter of interpretation and is obviously linked to each investor’s situation and risk tolerance. It’s time to review and perhaps recalibrate.”

Total returns for the third quarter indicate:

• Local equities, as reflected by the JSE All Share Index, up 13,29% for the quarter and up 8,69% for the year to date (ytd)
• The All Bond Index up 8,04% for the quarter and 14,11% ytd
• Listed property (a star performer so far) up 13,67% and up 25,68% ytd
• Preference shares up 5,20% and 13,32% ytd
• Resources up 7,11% for the quarter but still down 3,63% ytd
• Rand up from 7,67 to the dollar at the end of Q2 to 6,96 by the end of Q3
• Gold up 5,7% for the quarter in dollars but down 4,1% in rands

Pheiffer notes: “Local equities bounced back after shedding 8,17% in the second quarter. Improving economic fundamentals and corporate earnings have boosted equity markets both globally and locally. Over the third quarter Imperial was up 32%, Naspers was up 31%, Old Mutual rose 30% and Richemont gained 27%. After such a strong run, investors need to carefully consider whether there is still value in their stock selections.

“The rand’s had a great run, but for how long? Are you adequately diversified offshore or do you need to adjust your offshore weighting? Resources, one casualty of rand strength, revived after retreating 11,87% a quarter earlier. The relative underperformance of resource counters over the quarter and the year so far seems to imply that future commodity softness is expected.

“Yet global GDP growth of about 4% is predicted for this year and next, which rather suggests stable to firmer commodity prices. So is the resource revival the start of a trend or a false dawn?”

Offshore impacts also have to be considered, say Absa Investments.

The bond market uptick was not only driven by expectations of a September rate cut, but by a strong yield play in emerging market bonds by fund managers in the developed world. Our markets are among the most liquid in emerging markets, so any reversal of international sentiment would be rapidly reflected in our bond market.

The same applies to equities. Foreign inflows into the JSE amounted to R19.5bn for the year so far, but in the third quarter net inflows were almost flat – perhaps a sign that offshore fund managers are starting to sense more opportunities closer to home as talk of double-dip recession recedes.

“The foreign appetite for our consumer-related stocks also raises some questions,” says Pheiffer. “Has it made some counters expensive? Is profit-taking indicated?

“Sometimes our clients can afford simply to sit tight. At other times you have to sit and think. This is one of those times.”