Take your time investing in current conditions – Absa

Third quarter market movements have highlighted the challenges of investing right now in just about every asset class while demonstrating that Washington, not Pretoria, currently governs our markets.

The assessment comes from Craig Pheiffer, head of Private Client Asset Management at Absa Investments

He notes: "Signals are mixed, movements can be deceptive and local dynamics have relatively little impact. For every positive there’s a caveat.

"Investing for the long term is always better than sitting on the sidelines for an extended period. But if you’ve just come into a large lump sum it’s probably better at the start of the fourth quarter to phase your money into the market, perhaps over six months or more.

"Things are volatile and astute stock selection is essential.”

Pheiffer’s appraisal is influenced by the dramatic effects of the US Federal Reserve decision to delay the implementation of ‘tapering’ – the process of reducing the amount of money the American authorities pump into the economy.

The prospect of less easy money and firmer interest rates turned global sentiment against emerging markets, including South Africa. But when tapering went on hold late in the third quarter, money flooded back into emerging economies.

"We saw significant risk-on and risk-off effects in September,” says Pheiffer. "Second guessing Washington doesn’t make for a stable environment. The impact on our bond market can be dramatic.

"On the face of it, equities are the place to be. But the late boost to the JSE was so pronounced many will consider the overall market to be expensive with an elevated risk of a correction.”

In the quarter, the JSE All-Share Index rose 12.5% for a total year-to-date return of 15.1%, with the Alsi Top 40 up 13.9% in the quarter for a nine-month gain of 16.3%. Small-capitalisation stocks rose 12%, taking the nine-month total return to 21.6%.

Continued quantitative easing by the US helped local bond prices edge higher, but cash remained a better performer than bonds, though cash still struggles to keep pace with inflation, says Pheiffer.

The All Bond Index rose 1.9% for the quarter or 0.5% for the year to date. Cash rose 1.3%, lifting the nine-month gain to 3.8%.

Pheiffer says the prospect of firmer rates was "strongly negative for listed property, but the tapering reprieve softened the blow”. The asset class still fell by 1.3% for the quarter, but the year-to-date gain of 7.3% still outstripped inflation.

Resources saw a 19.7% quarterly rebound, not quite enough to put the sector back into positive territory. For nine months it is still down 0.8%. Platinum rose 36.7% in the quarter, but is still down 10% so far this year. Gold retreated by 0.4% and is down 45.6% over nine months.

Pheiffer cautions: "There’s no quick fix for local volatility. There may be some local value opportunities, but judicious stock-picking is indicated.

"At the same time, a case can be made for going offshore. Local challenges won’t go away any time soon.”