‘Submerging market’ hedge could be timely – BJM PCS

What happens if emerging markets are transformed into ‘submerging markets’ by a significant shift in international investor sentiment? Will you have taken advantage of today’s positive mood and strong rand to achieve improved offshore diversification?

These questions are currently being put to high net worth clients by Barnard Jacobs Mellet Private Client Services (BJM PCS), a wealth management company that specialises in bespoke services for affluent South Africans.

“Current market conditions suggest there is a window of opportunity for achieving improved portfolio balance,” says Louis Bekker, head of multi-manager funds at BJMPCS. “There may be potential for the rand to strengthen further or for international appetite for emerging market investment to gain added momentum. But the fact remains that now is a good time to pause and review onshore/offshore balance.”

According to global market-watchers at BJM PCS, international appetite for emerging market yields may have blinded some foreigners to value opportunities closer to home.

They point to a mismatch between the strong uptick in local equities and more modest growth being achieved on some overseas markets.

For instance, in the six months to late June, the JSE All Share Index rose almost 30% in US dollar terms while the MSCI World Index eased just 8% higher.

Bekker adds: “The comparison suggests some global markets could be undervalued relative to emerging markets. This, together with current rand strength, supports the view that now could be a good time to put funds offshore.”

Portfolio rebalancing is often considered when the advisers at BJMPCS indicate to clients that JSE valuations are at or above ‘fair value’.

“Review and possible rebalancing have certainly become key themes in recent discussions with clients,” says Bekker.

“Another factor to remember is the tendency for markets to over-compensate. The pendulum swings too far one way and then swings back. This represents both risk and opportunity – and clients should be alerted in good time.”