Edward West
8 June 2009
Johannesburg — THE rand's strength and the high valuation of local equities relative to developed markets mad e it a good time for investors to consider expanding their offshore portfolios, according to Sanlam Private Investments' (SPI) director of investments Alwyn van der Merwe.
He said on Friday that rand strength at about R8/ from about R11,50/ last year, from a longer-term perspective made it a good time to invest offshore. The rand traded 0,3% firmer at R8,02/ on Friday afternoon.
Van der Merwe said that typically retail investors reacted strongly to a currency depreciation because of the bad news associated with the decline, such as during the rand's weakness in 2001-02, when many South Africans invested offshore at the worst time from a currency perspective.
He said SPI's own studies showed the rand -- although difficult to forecast in the short term because it was the most volatile currency in the world -- at R8/ was marginally stronger than its fair value at R8,50-R9 against the dollar.
The question then arose if it was wise to enter equity markets in developed countries after last year's crash.
Van der Merwe said the price:earnings ratio of South African equities at about 11 meant the assets were no longer significantly cheaper than in developed markets.
This was the first time in six or seven years that the discount between local and internal assets was absent. For instance, in 2002- 03, South African equities were at a price: earnings ratio of below 8-9, while that of markets in developed countries was more than 20 times.
And although economic growth in most developed countries was not good, there were some markets, such as Japan, where an investor might find good value, in spite of the overall gloomy economic outlook for those countries, said Van der Merwe.
Some of the short-term factors supporting the rand were funds coming into SA through the Vodacom listing, bond issues overseas and the fact that the Reserve Bank may be a buyer of dollars to increase foreign reserves.
MTN's possible tie-up with India's Bharti Airtel and the fact that the outlook for the current account was not as bad as expected were other supportive factors for the rand in the short term.
The passing of the dividend by Anglo American and Old Mutual would also be supportive of the rand while the recent strengthening of some commodity prices, such as gold and platinum, meant SA's terms of trade were not likely to have deteriorated further, he said.
The currency had relinquished gains last week following the Bank's comments about the effects of the stronger rand on SA's competitiveness, and following concerns among global investors about the stability of the Eastern European financial system.
Be the first to Write a Comment!
Copyright © 2009 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
