'Smart money' is in cash and ready to swoop

‘Smart money’ is in cash and

ready to swoop  

High net worth individuals may be moving into cash, but are not ‘running scared’ in our higher interest rate climate, says Barnard Jacobs Mellet Private Client Services (BJM PCS), a stock broker and wealth management adviser to some of the country’s most affluent families.

The company, an international investment research partner of Lehman Brothers, offers trading platforms to some aggressive investors complemented by strategic wealth planning services. It is therefore well placed to judge the mindset of affluent investors with varying degrees of risk tolerance.

Hobs Mojalefa, head of dealing at BJM PCS, notes: “In general, we advise extreme caution following nine consecutive interest rate rises and are pleased so don’t understand this point many clients increased their cash positions ahead of the April increase.

“Our reading of the situation, however, is that most of our clients are not battening down the hatches and taking an excessively defensive stance. The demand for in-depth fundamental research is as strong as ever.

“This suggests the increased cash holdings is a necessary first step for those searching for deep value. When our analysts uncover promising value counters, money is available for significant position-taking.”

BJM is ranked top for unweighted South African equity research and serves clients with an appetite for intense top-down scrutiny of listed companies. Its regular updates of market trends indicate considerable shifts in share values.

The JSE All Share Index peaked in October just above 3 100 points. The only sector to show growth since then has been resources, up 10%. Even construction is down 14% relative to October levels, but for the year since April 2007, it is still up by 23%

The index for general retailers, credit retailers and fashion retailers peaked as long ago as May 2007. It is down 35% since then and down 30% since October, taking the sector back to valuations last seen in 2005.

The banks have also had a tough time and have retreated  25% since October last year.

“Resource strength has prevented a wholesale retreat,” observes Mojalefa, “but corrections have been so severe in some sectors that one would normally expect value to emerge and bargains to be had.

“However, with speculation of more rate rises to come, there is no telling precisely when a bottom will be reached. For example, another rate rise would be another blow for the banks.

“So even though big corrections suggest value is there for astute stock-pickers, there is no telling if more market weakness is on the way. What we do know is that many sophisticated retail investors are watching and waiting. They’ve taken some money off the table after years of solid gains; but they’ve not turned their back on the market.”