Time to be defensive – BJM Private Clients

Better-off South Africans are being advised that it is time to become defensive with their asset allocations and stock selections.

The wealth-preservation tip comes from BJM Private Clients, a leading adviser and asset manager to high net worth individuals and a company known for award-winning investment research.

BJM Private Clients communicates its best view to clients via a regular, highly detailed investment presentation. This time around, chief investment officer Mark Appleton stressed the fundamental differences between today’s key indicators and the pre-uptick scenarios that alerted clients to wealth-building opportunities in 2009.

Large amounts of public debt across major economies were particularly significant and could have a major braking effect on future growth prospects.

Appleton noted: “Many JSE counters have entered expensive territory, making significant capital appreciation unlikely. However, dividend growth of about 20% over the next 12 months is possible. We also foresee a continuation of low local interest rates until 2011, with forecasted GDP growth moving from about 3% to 4% next year.

“Globally, we anticipate returns of about 8% in dollar terms. Some international price-earnings ratios are relatively low, suggesting value opportunities in selected global equities, especially as a rand-based entry-point is quite favourable at the moment. The rand is expected to soften to about 8,2 to the US unit next year, improving the return for South African investors.”

With risk tending higher, defensive position-taking would be appropriate for many investors, said Appleton, though “circumstances change from case to case and prudent investors will seek independent advice from trusted advisers capable of obtaining optimum results from an individual portfolio”.

In general, BJM Private Clients believed single-digit returns are indicated in 2010. Those looking for income may be well advised to look at corporate bonds, listed property and preference shares.

Appleton added: “Locally, this may not be a great year for capital appreciation. Opportunities to buy quality defensive stocks at reasonable prices should be explored. Offshore looks a promising diversifier.

“Expectations should be kept reasonable. Those looking for significant growth should be aware of attendant risk. The risk of a market pullback has grown.”