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Analysts look to interest rate cuts for ... |
Analysts look to interest rate cuts for equity market recoveryTHE Johannesburg Stock Exchange had a roller-coaster year, but analysts think it has now found a base and could make solid gains in 1999. "This market is shell-shocked," says Greg Amoils, portfolio manager at Irish Menell. "It's been one of the worst years in the South African equity market history. Going into next year, though, I expect some bull positioning, depending on how interest rates go." Johannesburg's all-share index closed on Friday down 26.9 points or 0.5% at 5.108, bringing losses for the week to 100 points or 1.9% and 18% for the year. A 20% tumble in the rand's value in mid-year, after interest rates were jacked up to decade highs, undermined the equity market's first quarter gains and halved the index's value. There's been a mild bounce, but after the peaks and troughs few investors have the stomach to drive the market higher in the last days of the year. Yet analysts say that doesn't mean there's no value left. "The market is quite oversold. If you look at the history since 1987, it's trading well below its mean," says Guy Woolford, chief investment officer at Infiniti Asset Management. "It's hard to believe that stocks can rally in this environment, but then the darkest hour precedes the dawn." Woolford believes further rand weakness in 1999 - if it's not excessive - could be positive for the market, particularly rand hedge stocks which make up about 40% of the index. He looks to sectors like electronics for gains next year, and thinks restructuring among the larger industrial counters could shake loose tied-up value. "You've got to stick to recession-proof sectors like electronics. We're going to get some of the most exciting growth in the economy coming from that sector." Amoils and Woolford point to networking group Comparex, with extensive operations in Europe, as a potential winner in 1999, as well as other IT heavyweights Datatec and Didata. Amoils suggests steering clear of commodity-based stocks, battered his year as demand slumped when Asia went through the mill. Retail is also a sector on hard times, with little sign of recovery, he says. A spur for a good start to 1999 will have to come from interest rates. Commercial banks have gently lowered their borrowing costs as the official repo rate has fallen in recent weeks, but further cuts in prime are needed. Other concerns on the horizon include the country's second democratic elections sometime between April and July, which analysts think could keep both foreign and local investors temporarily at bay. But they believe the pyschological 5 000 level - where it seems the all-share index is likely to settle for the year - will provide a solid launch pad for the new year. "Asset managers will probably come back from the beach, realising their books are in better shape than they thought, and put money into the market," says Woolford.
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