Chantal Marx
Last year was yet another volatile year in global equity markets and another year in which the JSE underperformed most major international markets. The S&P 500 had a bumper showing after a difficult 2022 as the AI revolution gave impetus to the technology sector and saw a few new tech giants come to the fore.
The Chinese market struggled as a much-anticipated reopening of that economy failed to materialise in the strong growth that was anticipated at the start of 2023.
This means that South African stocks remain attractively priced on a relative basis and so do Chinese companies. That said, there is very strong thematic thrust behind some of the US-based technology stocks, and with earnings expectations continuing to push higher, some of them (surprisingly) don’t look that expensive.
There should be some support for risk assets this year, particularly in the second half when it is widely anticipated that global central banks will begin to cut interest rates. However, there are major risks in 2024 that have been highlighted widely including geopolitical conflict, political risk as more than half of the world’s population heads to the polls, climate change and the possibility of further weather-related disasters, and macroeconomic uncertainty, to name but a few.
Against this backdrop, we prefer:
1) Stocks and ETFs that offer good value, in other words, are trading at low earnings multiples and offering good dividend yields.
2) Companies and ETFs that are defensive but could benefit in the event of a cyclical upswing.
3) Companies and ETFs with strong long-term thematic impetus.
Local picks
Compagnie Financière Richemont (CFR)
Richemont is a Swiss luxury goods group managed with a view to the long-term development of successful international brands. The company owns several of the world’s leading brands in the field of luxury goods, with particular strengths in jewellery, luxury watches and writing instruments. Brands include Cartier, Alfred Dunhill, Montblanc, Lancel, and Van Cleef & Arpels.
• Luxury goods, from a thematic perspective, remains attractive when considering an improvement in spending power of emerging market consumers.
• Richemont offers a unique and strong portfolio of brands, which is well-diversified from a product and geographic perspective.
• The group’s overall growth strategy is based on utilising central and regional support hubs to deepen market penetration in fast growing markets while seeking targeted acquisitions.
• Richemont also boasts a solid balance sheet and profitability measures, supported by low gearing levels, high cash generation, strong ROA, as well as robust ROE.
• The company’s cash position remains strong and is key to its defensive investment case. This also allows for large investment, which will support growth into the future.
Notwithstanding a continued uncertain macroeconomic and geopolitical environment, the group beat top-line expectations over the third quarter (to December 2023) amid solid growth across most business areas (Jewellery Maisons continued to generate the strongest performance) and regions (primarily driven by Japan, Asia Pacific, and the Americas). Year-to-date revenue growth is also tracking ahead of full-year expectations despite a tough comparable period, which was another key highlight.
All distribution channels, besides online, recorded a positive performance with double-digit retail sales growth being bolstered by a positive performance in all regions (except Europe) – notable strength was seen in mainland China, Hong Kong and Macau combined, as well as in the US. Retail also recorded the strongest relative channel performance, led by the Jewellery Maisons and Specialist Watchmakers, and further raised its contribution to 71% of group sales. Positive wholesale growth was sustained by strong sales at the Jewellery Maisons which more than offset a softer performance across the rest of the group, partly due to further targeted closures of external points of sale.
While the share price popped after the trading update, the group’s forward PE of 17.6 times is still well below its average rating historically and at a larger-than-normal discount to peers. We continue to see long-term potential in the sector.
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