Investors on the JSE experienced a fair amount of volatility last year but this year is going to be worse.
That’s the view of Sanlam Investment Management (SIM), particularly Colin McQueen, the UK-based senior portfolio manager of Sanlam Four.
However, he points out that market volatility is not necessarily a bad thing as it can reveal shares that perform well in such an environment.
“[Last year] was a year of volatile returns on markets around the world. A number of things drove that, such as conflict in Russia and Spain, changes in governments and elections. Politics had an unusually large effect on markets,” McQueen says.
This year one of the big factors influencing markets is the low oil price. The effect is felt around the world, not least in SA (see table).
Looking at shares, McQueen likes Hong Kong-listed banking group HSBC “It has a strong balance sheet and controls costs well. It is also fully international, with a presence in more than 70 countries.”
Another favourite is Enzion Holdings, listed in Singapore. The group owns the largest fleet of safety and specialty sea vessels in the world. It also has a prudent balance sheet.
There are also a couple of local shares that SIM rates as buys this year. Portfolio manager Vanessa van Vuuren likes construction company Stefanutti Stocks “It has endured a few years of turmoil, with its earnings declining from 2010 to 2014. For the financial year to February 2015, its interim results are finally showing an improvement off a depressed earnings base.
“At the same time, its order book has shown healthy growth,” she says.
But she cautions there’s risk too, mainly from the fine Stefanutti had to pay for collusion. She says the company has told the market it is not guilty of any other collusive acts, but the protracted risk of civil claims remains.
There is also the risk of the loss of the confidence of clients, investors and government.
Nonetheless, Van Vuuren believes the bad news is accounted for in the current share price, and trading at about half its net asset value there is value in the share.
Portfolio manager Charl de Villiers likes Steinhoff, which recently concluded the huge acquisition of Pepkor (see story on page 40).
“The Steinhoff group has invested significant capital to reposition itself. The fruits are appearing through the margin expansion we have seen over the past two years.
“We feel there is more to come as many of the factors that have driven the recent operational improvements are still relatively immature.”
De Villiers is wary, however, of Steinhoff’s continued use of convertible debt instruments in the funding mix.
“We feel that these instruments undervalue the longterm opportunity residing in the value of the group’s equity for short-term gains via lower funding costs,” he says.
He concludes that the investment case for Steinhoff is positive, relatively low risk and highly probable.