Plenty of puff left in this bull

South African investors are riding the wave of one of the strongest bull market rallies in history. Shares listed on the Johannesburg Stock Exchange (JSE) have been consistently increasing in value since 2003, taking pension funds, retirement annuities an

These were some of the revelations at a 2007 Economic Outlook presentation by Old Mutual Investment Group SA (OMIGSA) in Johannesburg on Tuesday, 30 January.

According to Peter Brooke, Head of Macro Strategy Investments at OMIGSA, "The bull market we are experiencing is already the second longest and second strongest in SA history. On both an historic and forward basis, our market PER is high and it could g o even higher - everything depends on global market sentiment."

Equities were the best performing asset class in 2006, returning a staggering 41.2% (after adjusting for dividends). They outperformed listed property (28.4%), cash (8.1%) and bonds (5.5%) by quite some margin.

More to come in 2007

Brooke expects more of the same in 2007 - though equities are likely to show significantly lower growth. The expectation is for equities to return 12%, listed property 11%, cash 10% and bonds 8%.

Brooke's advice to investors is to remain focussed on personal savings. In his view, the equity market remains the best destination for such funds Cash remains a good bet as a short term measure, but Brooke stressed that it is NOT a growth investment.

The majority of OMIGSA's Asset Allocation funds remain heavily exposed to equities. Their low risk fund for conservative investors had 36.1% invested in local equities while their high risk funds for more aggressive investors allocated a massive 68.9% to the domestic equity market.

Plenty of positive surprises

OMIGSA chief economist Rian le Roux mentioned a number of trends which surprised in 2006 and could have bearing on 2007 performances too. The continued strength of domestic consumption and investment provided a great platform for the economy. Consumers were not daunted by the 200 basis point interest rates increase or the many petrol price increases in 2006.

Domestic consumption is expected to remain strong in 2007 and continue to bolster economic growth. Results of the latest MasterIndex of Consumer Confidence survey (commissioned by MasterCard Worldwide) confirm this view. T-sec economist Mike Schussler says that "the MasterIndex survey indicates that South African consumers are still very confident about their prospects in the next six months."

"We need to remember that the economy is also in the longest period of growth since statistics of GDP started around 100 years ago. Certainly the South African economy is creating jobs and opportunities which positively impacts consumer confidence."

A second surprise was the level of foreign inflows to the SA equity market. The consensus view is that foreign investor confidence will remain important for the local equity market in 2007.

So, barring any large outflow of foreign funds from the JSE, the domestic equity bull market looks set to continue over the next twelve months.