By Brown Amuenje
Over the last four years the stock market has experienced a strong bull market largely driven by soaring commodity prices, low inflation, global liquidity, a low interest rates environment and the China growth story.
The Namibian Stock Exchange (NSX) is up 321% (including dividends) since May 2003 while the Johannesburg Stock Exchange (JSE) is up 350% (including dividends) since May 2003.
Given the current environment, it is difficult to clearly say what the return expectation of the market is. What is clear is, that this is a market where stock picking (choosing shares in your portfolio) has become absolutely critical for investors to continuously deliver the investment returns we have come to experience over the past four years.
STANLIB Namibia believes that individual shares are going through their own rolling bear markets, while the overall market (NSX and JSE Index) remains in its major bull trend. For example, Woolies is down 40% from its record high in May this year, Truworths is down 35%, back to where it was 20 months ago.
Imperial is down 42%, back to early 2005 levels, while the JD Group is down 46.5% in just eight months, back at 2004 levels! Investec is still 33% below its record high of six months ago.
These are extraordinary losses, with a common theme to most of them of retail sales, including vehicles (Imperial), i.e. companies being badly affected by rising interest rates and to some extent the National Credit Act.
Bidvest is down 20% in the past four months (12% in two weeks), which is a bit more surprising because they’re mostly in services which are more defensive than retail.
Also, Bidvest looks very cheap here on a forward price-to-earnings ratio of just 10.8 to June; but of course this doesn’t imply the share will stop falling. Sometimes these declines get a life of their own.
But it is important to put these declines in context. The retail index is still up over 300% since the low in 2003, excluding dividends. That translates into a highly impressive 34.7% per year, despite having declined by 29% from its peak.
The total return, including dividends, is an even more impressive 39.6% per year for over four and a half years. Bidvest’s total return is over 30% per year since the start of the bull market, which is also handsome.
Clearly, however, differences in portfolio performances will be much more pronounced than in the past, even within sectors. Imagine a portfolio overweight in retail shares (down over 10% so far in 2007) relative to one overweight in construction shares (sector up 68% so far in 2007); or a portfolio overweight in gold shares (down 10%) versus one overweight in platinum shares (up 30%); or one overweight in BHP Billiton (up over 75%) versus one overweight in Anglo American (up 34%).
It is clear that shares which have fallen dramatically, like both Imperial and Bidvest, will soon become great buys again and the trick will be choosing the right time to buy them. That is always a very tricky exercise unless one is a long-term investor, as such long-term investors could gradually accumulate such shares so that they end up with a good average cost price.
For example, Anglo Platinum fluctuated widely in 2003/4 between a high of N$350 a share and a low of N$90 a share. Today it is close to N$ 1,000 a share (having traded at N$1,250 earlier this year). The point is: Had an investor accumulated Amplats during weakness in 2003/2004, they would have won handsomely by today. Clearly, the soaring platinum price has been the big reason.
– Brown Amuenje is Director/Portfolio Manager, STANLIB Investment Management Namibia