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Watch the numbers...

15 August 2004 Angelo Coppola

(16.8.04) Investors are at the crossroads and looking desperately for direction, according to STANLIB.

Paul Hansen, STANLIB’s Director of Retail Investing, points out that the six-monthly figures to June 30 have “given pause” to many investment advisers who find it increasingly difficult to give clear-cut guidance to clients.

His recommendation to intermediaries is that this is no time to try to outsmart the market as the biggest imponderable of all – the rand – now has a 30 month record of proving most experts wrong.

His advice is to “think strategically, not tactically; look for balance and don’t look to make any big bets in any one direction”.

“Market timing is difficult at the best of times,” says Hansen. “The current scenario makes it even more problematic.”

One of the difficulties is the contradiction in some numbers. A one-year reading of the equity market shows 24.9% growth, but this turns marginally negative when the yardstick is the six months to mid-year.

The other difficulty is the “huge impact” of the rand. Over the last six months, the unit is considered to be the prime suspect behind the 16% retreat by resource stocks, the 5% decline by the JSE Top 40 and the 4% fall in the All-Share Index.

The best-performing sectors are those where rand-hedge stocks are under-represented or don’t feature at all. In the six months to June 30, for instance:

  • Small-cap unit trusts are up 7%
  • The financial index is up 5%
  • The industrial index is up 5%
  • Standard Bank’s share-price hit an all-time high on July 15th
  • Local fashion chain Edgars hit a new multi-year high about the same time
  • Income funds and listed property funds enjoy continuing investment attention – largely because they are out of the rand’s reach and in fact benefit from rand strength because this helps keep inflation down.

Hansen argues that short timeframes kill perspective and that “the numbers usually favour those who take a long view”.

He supports the argument by reference to the rand.

In December 2001 it was worth 6 US cents. By early July 2004 it was worth 16.4 US cents, reflecting appreciation of 127% on a 30-month view.

Yet in the 19 years from 1982 the unit lost 94% of its value. Between 1982 and mid-2004 it lost 84% of its value.

Says Hansen: “We’ve reached a stage where almost every piece of investment advice contains the caveat ‘depending on what the rand does next’.

“This tells me that this is a time for strategic investment planning, not tactical allocations.”

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