The World in 2013 is the South African Investor’s Oyster

The globalisation of emerging markets and resource based economies in general has given rise to scenarios and opportunities that are perfect for South African investors.

Really, the world is our oyster.

On our domestic market, we have world-class management teams and Afro centric quality counters that are offering reliable and growing earnings and dividend streams. And research shows that dividends are a very important component of total share market returns.

The relentless printing of dollars in America and now the sudden stimulus from Japan means that South African investors can time an entry point where the exchange rate is not the biggest hurdle. Also these stimulus packages are very supportive of share prices. This situation – and opportunity – is going to persist for at least the medium term. US policy makers have not even considered a strengthening dollar. It is not in their interests. They cannot afford a strong dollar. They need a debased one to help repay debt and this is a blessing for South African investors. US manufacturers are not so vociferous about cheap Asian imports and it is a huge advantage to US exporters providing further stimulus to the economy.

So although opportunities abound, it is still without question a stock-pickers market. By this I mean that some overseas stocks are overpriced and, as such, one would not want to buy an index fund or a greatly diversified market portfolio. These investments will have a high price earnings multiply as compared to their probable and expected future growth rates, and so are bound to disappoint investors.

Investors still need to be very fussy about the selection of both South African and overseas shares. This is the only hope of an above average return. Eighteen months ago, many shares were clearly undervalued. This is no longer the case and as these “value gaps” disappear, investors will have to be that much more careful.

The continued strength of the rand, at a relatively healthy level, offers investors an additional choice spectrum. Look for stable, dividend paying companies with good management and profit records that are reasonably priced.

In a bull market, stable, dividend paying companies may not perform as well as new and racy high flying counters, but they do provide a margin of safety that is important to the serious minded investor.

The potential for above average returns this year is very good. The markets are awash with liquidity and stimulus packages.
In all this euphoria, it is important not to get carried away. Run your portfolio like a business because it is a business, so have business rules.

Don’t over extend yourself. Don’t borrow to invest and don’t invest money you cannot afford to lose.

Make sure you have strict investment criteria and apply these diligently. Never change these criteria and risk parameters just because your portfolio is doing well. Remind yourself that markets can and often do change overnight.

Make sure your asset allocation is correct. That is, that you are properly diversified across the various asset classes. Stick to quality and never buy on rumours and tips.

When you have reviewed your portfolios ask yourself if various markets break down and suffer a decline, will you still be able to sleep at night.

Work hard and good luck!