Greek tragedy makes it tough to keep clients happy – Absa
Greece’s debt tragedy and its market impact may make it tough to keep clients happy, but it’s important to encourage a positive mindset, says Absa Investments, Absa Group’s asset managers and investment product marketers.
Uncertainty caused by the risk of a Greek debt default contributed to muted JSE performance in the second quarter and for the first half of 2011, noted Craig Pheiffer, General Manager, Investments, at Absa Asset Management Private Clients.
“Uncertainty is bad for risk assets like equities,” said Pheiffer. “The Greek tragedy and slower global growth helped put a brake on JSE performance.
“Sadly, no other asset class raised a smile to offset JSE gloom – creating a challenge for financial advisers who may have to deal with some disappointed clients.”
Absa Investments – a marketer with a strong support-base among independent financial advisers – says intermediaries should stress the need for long-term planning at times like this.
“In the current climate, it is difficult to predict precisely which asset classes will deliver out-performance,” said Pheiffer. “Even clients with a solid weighting toward equities may find it’s in their long-term interest to grin and bear it, despite the Greek tragedy.
“If portfolio strategy is still closely aligned with the investor’s objectives and risk tolerance there is no need for wholesale change. Reassurance about future prospects may be more appropriate than radical review.”
Mid-year market numbers support the Absa Investments contention that no asset class is achieving startling returns at the moment. For instance …
§ The All share index is down 0.61% in total returns for the second quarter and up only 0.5% year to date
§ The All bond index is up 3.89% for Q2 and 2.26% year to date
§ Steffi (cash) is up 1.40% for the quarter and up 2.83% for the year so far
§ Listed property is up 5.03% for Q2 and 2.76% for year to date
§ Preference shares are up 1.05%, but still down 0.35% for the first half
Some equity investors may have had heightened expectations in view of the JSE’s stellar performance of recent years. In 2010, total returns hit 18.9% while a year earlier they reached 32.1%.
But there are some promising signs. Foreign appetite for our assets has firmed (R35 billion flowed into our bond market last quarter while foreigners bought R6 billion in JSE shares) and clients may be encouraged by a forward view.
Pheiffer explained: “Good corporate earnings growth around 20% is projected in the near term. Companies like Billiton and Anglo American that account for about 25% of local market capitalisation are expected to deliver solid earnings.
“This could move price-earnings multiples into more attractive territory, suggesting scope for a JSE uptick. Astute stock-pickers will still find value in selected counters and sectors.
“Furthermore, higher global growth is expected next year. That should be good for equity investors. So – assuming the Greek tragedy plays out with no major shocks – clients who retain their faith in equities could well have the last laugh.”
