Reality check!

I have recently written a note on current market conditions to clients at the company I work for and decided to publish it on this blog so here goes:

It is important to understand the sensitivities of investments and I would like to highlight some current developments.

Cash and Bonds
Not much needs to be said about these asset classes except to avoid them for longer term investments but treasure them for shorter term liquidity (0-3 years).

Listed Property
The longer the consumer takes to start buying goods and services, the longer it will take for retail and commercial properties to justify the fantastic recovery in the share prices of listed property stocks. We are not experts on this specific asset class and entrust the rating thereof in the hands of fund managers, but it seems as if this asset class carries more risk than some other equity investments.

Listed Equities (Shares)
As we are writing this the JSE All Share Index stands on 26 188 points. This means that it is fair value if compared to the average over the last 10 years. We want to make the following comments about investments in South African Shares:

1) We do not believe that the market should go up another 30% over the next 12 months as it has done over the previous couple of months. If this should happen, fundamental value would no longer exist and anything could happen.
2) On a technical valuation, everything is due for a correction. We do not invest client’s money based on technical valuations but rather on sustainable fundamental valuations. The implication hereof is that longer term the best place to invest is still shares but over the short term nobody can predict the direction of the market.
3)Our investment strategy is still to evaluate the timeline of our client’s investments and invest longer term funds in equities at the current fair value.

Rand vs. Other currencies
We are still of the opinion that the Rand at R7.87/US$ is too strong and that it should be closer to R8.50. To predict the value of the Rand is for us a guessing game and we suffice in saying that it is still a good time to invest in the International market if you haven’t reached your optimal offshore exposure (+/- 30% of longer term investments).

In Closing
We would like to remind our clients that investments are all about buying value for money and then having the patience for it to unlock. We believe that any sell-off in the market should be seen as an opportunity for a longer term investor to buy shares and for clients already in the market to understand that volatility is the nature of the beast (bulls and bears).