WEBVTT 1 00:00:00.380 --> 00:00:04.520 You're listening to Strictly Business Podcast with Lindsay Williams. 2 00:00:05.762 --> 00:00:11.383 The JSC is consistently making new highs, the S&P 500 and the Nasdaq the same. 3 00:00:11.384 --> 00:00:16.625 But when you look at these markets, are they showing the breadth that you might 4 00:00:16.625 --> 00:00:18.625 have got, say, 15, 5 00:00:18.625 --> 00:00:18.766 20 years ago and beyond? 6 00:00:18.844 --> 00:00:20.891 With me is Hannes van der Berg, 7 00:00:21.250 --> 00:00:26.766 head of SA Equity and co-head of multi-asset at 91 in Cape Town. 8 00:00:27.281 --> 00:00:29.031 It seems as though there are... 9 00:00:29.712 --> 00:00:35.637 Stock markets that are climbing the wall of worry, but not the whole stock market 10 00:00:35.637 --> 00:00:37.637 is doing so, Hannes. 11 00:00:37.637 --> 00:00:39.637 I haven't explained myself very well. 12 00:00:39.637 --> 00:00:41.637 You can do better, I think. 13 00:00:41.637 --> 00:00:43.637 Yeah, Lindsay, nice to talk to you again. 14 00:00:43.637 --> 00:00:45.637 It's been a fascinating year. 15 00:00:45.637 --> 00:00:48.688 Last year, everybody was talking about the Magnificent Seven and how strong the tech 16 00:00:48.688 --> 00:00:50.688 stocks have been in the US. 17 00:00:50.688 --> 00:00:55.735 And that conversation, more the artificial intelligence theme or dynamic and capital 18 00:00:55.735 --> 00:00:57.735 or capex spending 19 00:00:57.735 --> 00:00:59.735 that's happening in that sector. 20 00:00:59.735 --> 00:01:00.900 Really reaching levels which some are describing as euphoric. 21 00:01:01.980 --> 00:01:03.461 Incredible rally that we've seen. 22 00:01:03.641 --> 00:01:07.344 And also in between we've had the Liberation Day events that played out. 23 00:01:07.422 --> 00:01:11.281 But as things stand, the NASDAQ composite is up 17% for the year. 24 00:01:12.047 --> 00:01:13.844 The same has played out in the South African market. 25 00:01:14.609 --> 00:01:17.969 We haven't seen an as narrow a rally in the South African market in years. 26 00:01:18.484 --> 00:01:22.344 Essentially the OSHA index, as you and I speak, are up roughly 30%. 27 00:01:23.141 --> 00:01:29.062 But that is made up mainly from the resources index, which is Up year-to-date, 28 00:01:29.062 --> 00:01:31.062 astonishing, 29 00:01:31.062 --> 00:01:33.062 123%. 30 00:01:33.062 --> 00:01:37.010 That makes up 30% of basic materials, makes up 30% of what we can define as cap, 31 00:01:37.010 --> 00:01:37.273 SWIX, 32 00:01:37.273 --> 00:01:38.690 or all-share index. 33 00:01:39.252 --> 00:01:45.151 So that explains pretty much the whole index rally that we've seen, which as you 34 00:01:45.151 --> 00:01:47.151 described it, it's been phenomenal. 35 00:01:47.151 --> 00:01:48.588 The rest of the sectors, the bank sectors, up 5%, 6%. 36 00:01:49.088 --> 00:01:50.619 You've also received a bit of a dividend. 37 00:01:51.000 --> 00:01:55.045 The general retail sector is down 22% year to date. 38 00:01:55.085 --> 00:02:01.471 So it's been a very unsort of characteristic move we've seen in the 39 00:02:01.471 --> 00:02:03.471 South African market and also similarly, like I said, 40 00:02:03.471 --> 00:02:05.471 on the offshore markets. 41 00:02:05.471 --> 00:02:06.417 Is it the case then that there are bargains to be had on the JSC? 42 00:02:06.495 --> 00:02:11.096 I mean, outside of the PGMs and outside of the gold shares and also other general 43 00:02:11.096 --> 00:02:13.096 miners. 44 00:02:13.096 --> 00:02:16.081 Can you have a look at the market now and say, if you didn't know it so well, you 45 00:02:16.081 --> 00:02:18.081 would say, well, 46 00:02:18.081 --> 00:02:19.784 why is that one down in a low interest rate environment? 47 00:02:20.340 --> 00:02:23.343 And an environment that is hopefully going to encourage some growth. 48 00:02:23.363 --> 00:02:29.873 And you look at the retailers and you look at the banks with their dividend yields 49 00:02:29.873 --> 00:02:31.873 and you say, this has surely got to be a no-brainer. 50 00:02:31.873 --> 00:02:36.873 It's an interesting conversation when I have this debate with John Pickard, who 51 00:02:36.873 --> 00:02:38.873 manages equity on the value side here at 91. 52 00:02:38.873 --> 00:02:42.966 John would very quickly highlight that our bond yields traded around about 11.5%, 12% 53 00:02:43.701 --> 00:02:44.888 a few months ago. 54 00:02:45.107 --> 00:02:47.982 Our RAND was closer to 19, 50 and 20. 55 00:02:48.591 --> 00:02:52.496 enough Government of National Unity got formed, and a lot of things have happened 56 00:02:52.496 --> 00:02:54.496 since then. 57 00:02:54.496 --> 00:02:59.379 Our rent currently sits at $17.50-ish. Our bond yields have rallied all the way to 58 00:02:59.379 --> 00:03:01.379 $9.25, 59 00:03:01.379 --> 00:03:03.379 so 200 basis points. 60 00:03:03.379 --> 00:03:04.371 And yet the stocks are trading at valuations the same, if not cheaper, 61 00:03:04.629 --> 00:03:08.230 as some of them traded before the formation of the Government of National 62 00:03:08.230 --> 00:03:08.414 Unity. 63 00:03:08.414 --> 00:03:09.246 So you're right. 64 00:03:09.277 --> 00:03:13.730 I mean, in the banking sector, there are stocks that are trading at six times 65 00:03:13.730 --> 00:03:13.883 forward. 66 00:03:13.883 --> 00:03:15.371 NetBank and APSA are forward PEs. 67 00:03:15.605 --> 00:03:17.402 Standard Bank is on an eight-time forward PE. 68 00:03:17.788 --> 00:03:23.573 If you go lower down, you'll find that some of our retailers, the likes of 69 00:03:23.573 --> 00:03:25.573 Foschini are on a nine times forward, Truers on a seven times forward. 70 00:03:25.573 --> 00:03:27.573 Mr. 71 00:03:27.573 --> 00:03:29.573 Price is on a 12 times forward. 72 00:03:29.573 --> 00:03:31.573 We previously couldn't trade at a 15 times forward PEU. 73 00:03:31.573 --> 00:03:35.851 You're finding some of our life insurance companies that are trading at or below the 74 00:03:35.851 --> 00:03:37.851 valuation metric we use there is called embedded value. 75 00:03:37.851 --> 00:03:42.272 So it's a really interesting market dynamic where you're seeing stocks that 76 00:03:42.272 --> 00:03:44.272 are trading very attractively. 77 00:03:44.272 --> 00:03:47.069 And then what I would also add, and I'm going to try and keep it short, is our 78 00:03:47.069 --> 00:03:49.069 reserve bank have tried to... 79 00:03:49.069 --> 00:03:50.067 talking about targeting a 3% inflation target. 80 00:03:50.127 --> 00:03:56.456 And that is providing a substantial, what I would define as valuation underpin to 81 00:03:56.456 --> 00:03:58.456 our equity market because our bond 82 00:03:58.456 --> 00:04:02.698 yields are going to rally lower and potentially drive a bit of a re-rating in 83 00:04:02.698 --> 00:04:02.820 our market. 84 00:04:03.198 --> 00:04:06.510 When you have a chat with Picard, are you on the opposite side of his arguments? 85 00:04:07.588 --> 00:04:08.432 No, it's interesting. 86 00:04:08.526 --> 00:04:10.307 John was very bullish on gold. 87 00:04:10.588 --> 00:04:12.010 We still have a lot of gold. 88 00:04:12.073 --> 00:04:13.573 He's taken profits on them. 89 00:04:13.854 --> 00:04:15.338 We feel there's still further momentum. 90 00:04:15.339 --> 00:04:17.506 him and And that's just different investment philosophies. 91 00:04:17.507 --> 00:04:22.111 He saw value and then he felt the value became reasonable or in some cases a bit 92 00:04:22.111 --> 00:04:22.171 extended. 93 00:04:22.471 --> 00:04:27.939 Our investment philosophy is one where the earnings profile of the stock drives, in 94 00:04:27.939 --> 00:04:29.939 our minds, the share price. 95 00:04:29.939 --> 00:04:32.400 And with the aggressive rally we've seen in the gold price, currently at 4,100. 96 00:04:32.416 --> 00:04:35.697 And put that in perspective, it was 2,000 in the global financial crisis. 97 00:04:35.744 --> 00:04:39.166 So it's doubled since 2008. 98 00:04:39.228 --> 00:04:44.619 That drives a strong upgrade earnings cycle for gold stocks as well as PGM 99 00:04:44.619 --> 00:04:46.619 stocks, which we own and John doesn't. 100 00:04:46.619 --> 00:04:49.423 But what John has interestingly done, because of the arguments we just discussed 101 00:04:49.423 --> 00:04:51.423 from a valuation perspective, 102 00:04:51.423 --> 00:04:52.985 he finds that these stocks are trading at unreasonable or unrealistic values. 103 00:04:53.305 --> 00:04:54.329 And we share that view. 104 00:04:54.712 --> 00:04:59.915 We also own quite a big chunk of our portfolio in the financial sector and the 105 00:04:59.915 --> 00:05:01.915 banking sector. 106 00:05:01.915 --> 00:05:05.594 30% of the fund are exposed to financials and 35% of the fund are exposed to basic 107 00:05:05.594 --> 00:05:07.594 materials. 108 00:05:07.594 --> 00:05:09.626 That explains two-thirds of the equity fund positioning. 109 00:05:10.197 --> 00:05:13.385 So we share the view that there are some good opportunities in South Africa. 110 00:05:13.665 --> 00:05:15.129 We agree with John on that side. 111 00:05:15.430 --> 00:05:18.340 The obvious question here is when does growth start to come through? 112 00:05:18.891 --> 00:05:19.591 Yes, indeed. 113 00:05:19.591 --> 00:05:21.511 And growth is all to do with the government. 114 00:05:21.512 --> 00:05:23.413 It's not to do with the South African Reserve Bank. 115 00:05:23.492 --> 00:05:29.210 Somebody once said to me, he said, the government's job, though, is not to create 116 00:05:29.210 --> 00:05:31.210 jobs themselves by saying, right, 117 00:05:31.210 --> 00:05:32.374 we're going to fund this project and 10,000 people will work on it. 118 00:05:32.632 --> 00:05:35.679 That's the job of the private sector to do something. 119 00:05:35.929 --> 00:05:37.382 Create the environment, yes. 120 00:05:37.898 --> 00:05:39.757 Let the private sector do the rest. 121 00:05:39.773 --> 00:05:41.335 And that is what growth is all about. 122 00:05:41.617 --> 00:05:44.054 And that's when I come back to the retail stocks. 123 00:05:44.055 --> 00:05:45.820 They got such a huge boost. 124 00:05:46.039 --> 00:05:50.421 from the government of national unity when it first formed and everyone was 125 00:05:50.421 --> 00:05:52.421 optimistic. 126 00:05:52.421 --> 00:05:56.019 So they were unrealistically pushed higher and now they've more or less come back to 127 00:05:56.019 --> 00:05:58.019 where they should be, haven't they? 128 00:05:58.019 --> 00:06:01.902 Well, we saw the same in Ramaphoria when that happened in 2017 and the foreigners 129 00:06:01.902 --> 00:06:01.961 very 130 00:06:01.964 --> 00:06:06.441 quickly reminded us post the formation of the government of national unity they're 131 00:06:06.441 --> 00:06:08.441 not going to make the same mistake again. 132 00:06:08.441 --> 00:06:13.144 They're talking about 2% GDP growth for two years in a row that they feel will 133 00:06:13.144 --> 00:06:15.144 make them change their view 134 00:06:15.144 --> 00:06:17.144 on South Africa. 135 00:06:17.144 --> 00:06:19.144 So you're right. 136 00:06:19.144 --> 00:06:21.036 The Ramaphoria rally and the post-information of the Governor of 137 00:06:21.036 --> 00:06:23.036 National Unities, there were big sentiment changes and re-rating in stocks. 138 00:06:23.036 --> 00:06:24.938 And then that has to be confirmed by earnings growth and GDP growth. 139 00:06:25.118 --> 00:06:32.087 And these retailers, to your point, they tell us that it's incredibly difficult to 140 00:06:32.087 --> 00:06:34.087 operate in this environment of 1% GDP growth because that's stall speed. 141 00:06:34.087 --> 00:06:38.274 You don't find new jobs being created, new consumers joining the spending fray. 142 00:06:38.852 --> 00:06:40.290 And also, these companies... 143 00:06:40.962 --> 00:06:46.257 out Inside and outside the retail sector, you can go to any other financial or 144 00:06:46.257 --> 00:06:48.257 manufacturing or industrial companies in Africa. 145 00:06:48.257 --> 00:06:53.726 They will only spend if there's confidence and if there's a clear line of sight and 146 00:06:53.726 --> 00:06:55.726 future for them to spend, create jobs and put infrastructure down. 147 00:06:55.726 --> 00:06:57.726 And that's that certainty that we need. 148 00:06:57.726 --> 00:06:57.890 Does it leave the markets very vulnerable? 149 00:06:58.015 --> 00:07:03.265 Does it mean that if the PGMs and the gold stocks have a bad period, 150 00:07:03.530 --> 00:07:09.702 then the JSE's All Share Index comes down and other things are dragged down with it, 151 00:07:09.702 --> 00:07:11.702 even if they haven't participated? 152 00:07:11.702 --> 00:07:14.585 in the rally, the same in the United States with the Magnificent Seven plus AI. 153 00:07:14.944 --> 00:07:21.808 If something happens there, if somebody comes out and says, well, actually, you've 154 00:07:21.808 --> 00:07:23.808 got to contribute a lot to the GDP of the country, 155 00:07:23.808 --> 00:07:27.159 the US in particular, in order to justify these valuations, and down they come. 156 00:07:27.425 --> 00:07:29.034 The whole market is then vulnerable. 157 00:07:29.206 --> 00:07:35.503 The whole financial system is vulnerable, given the amount of money that's been put 158 00:07:35.503 --> 00:07:37.503 into the stock market since Liberation Day. 159 00:07:37.503 --> 00:07:39.503 So vulnerability. 160 00:07:39.503 --> 00:07:41.460 Do you think that's something that you should be worrying about as a portfolio 161 00:07:41.460 --> 00:07:43.460 manager? 162 00:07:43.460 --> 00:07:48.841 Yeah, that's a very good sort of opening paragraph to what can be a very long and 163 00:07:48.841 --> 00:07:50.841 lengthy debate, Lindsay. 164 00:07:50.841 --> 00:07:51.021 I mean, we want to make money for our clients. 165 00:07:51.161 --> 00:07:56.224 We need to get our sales up to deliver inflation-beating returns over the medium 166 00:07:56.224 --> 00:07:58.224 and long term. 167 00:07:58.224 --> 00:08:00.224 Markets are giving us that at this stage. 168 00:08:00.224 --> 00:08:01.536 The beta and the returns that I spoke about earlier on is there. 169 00:08:01.708 --> 00:08:04.505 And ironically, we are getting interest rate cuts in the U.S. 170 00:08:04.818 --> 00:08:06.646 whilst markets are making all-time highs. 171 00:08:06.865 --> 00:08:08.588 and people just struggle to square that. 172 00:08:09.589 --> 00:08:11.431 So markets always climb this wall of worry. 173 00:08:11.470 --> 00:08:16.177 We as fund managers try and make money, but we have to be very aware of what are 174 00:08:16.177 --> 00:08:18.177 the risks out there. 175 00:08:18.177 --> 00:08:22.646 And to sort of summarize the risks and try and keep it short, I think a very 176 00:08:22.646 --> 00:08:24.646 consensus trade at this stage is to be long, 177 00:08:24.646 --> 00:08:29.224 make medicine seven, to be underweight, the US dollar, weak dollars driving 178 00:08:29.224 --> 00:08:31.224 stronger currencies in the emerging markets. 179 00:08:31.224 --> 00:08:34.521 And the other trade that I think is getting sort of a lot of attention and 180 00:08:34.521 --> 00:08:36.521 focus on is the gold trade and the PGM trade. 181 00:08:36.521 --> 00:08:39.318 So those three are quite crowded trades and we have to ask ourselves what if what 182 00:08:39.318 --> 00:08:39.358 if the dollar 183 00:08:39.359 --> 00:08:42.260 starts to strengthen what if the china u.s state of 184 00:08:42.283 --> 00:08:49.228 trade war escalates into year end what if the geopolitics rise or flare up again 185 00:08:49.228 --> 00:08:51.228 somewhere and there's there's a bit of a curveball and i 186 00:08:51.228 --> 00:08:55.908 think the big elephant in the room as well as the u.s consumer and is there a 187 00:08:55.908 --> 00:08:57.908 potential labor market and a slowdown coming because that drives 188 00:08:57.908 --> 00:09:02.627 70 of the u.s economy so there are lots of these things that we monitor on a monthly 189 00:09:02.627 --> 00:09:04.627 and a daily basis and try and stay close to. 190 00:09:04.627 --> 00:09:07.205 But for now and going into 2026, where we expect GDP growth, 191 00:09:07.302 --> 00:09:13.705 global GDP growth to be higher than 2025, we've still got ourselves up to try and 192 00:09:13.705 --> 00:09:15.705 make money for our clients. 193 00:09:15.705 --> 00:09:17.962 Just in case, are you prepared with insurance? 194 00:09:17.963 --> 00:09:23.712 I mean, are you allowed to in any of your portfolios, any of your strategies to put 195 00:09:23.712 --> 00:09:25.712 some insurance in place? 196 00:09:25.712 --> 00:09:25.994 We don't do derivatives. 197 00:09:26.025 --> 00:09:28.572 We don't hedge across the portfolios. 198 00:09:28.650 --> 00:09:30.603 But what we do try and do is you try and... 199 00:09:31.031 --> 00:09:32.792 work that out in your portfolio construction. 200 00:09:32.953 --> 00:09:34.496 I often call it the what-if scenario. 201 00:09:35.093 --> 00:09:38.238 What if the rent starts to weaken because the dollar starts to strengthen? 202 00:09:38.296 --> 00:09:39.562 How will the portfolio react? 203 00:09:39.999 --> 00:09:41.859 What if the gold price turns around? 204 00:09:41.960 --> 00:09:45.429 What will be the other areas where you can then have to focus on to make money? 205 00:09:45.468 --> 00:09:47.695 And how do you balance that in your portfolio? 206 00:09:47.696 --> 00:09:53.960 So we stress these top portfolios for what we call certain macro outcomes, commodity 207 00:09:53.960 --> 00:09:55.960 price moves, interest rate moves, currency moves. 208 00:09:55.960 --> 00:09:58.117 Also, if emerging markets or developed markets pull back, if bond yields suddenly 209 00:09:58.117 --> 00:10:00.117 spike. 210 00:10:00.117 --> 00:10:02.117 How will the portfolio react? 211 00:10:02.117 --> 00:10:04.117 And we try and balance it. 212 00:10:04.117 --> 00:10:06.117 And that's actually coming back to what we discussed earlier on. 213 00:10:06.117 --> 00:10:09.480 The interesting part about what we're seeing in the market, we are long stocks 214 00:10:09.480 --> 00:10:11.480 in the material sector, which has got a lot of momentum behind them, 215 00:10:11.480 --> 00:10:13.480 35% of the fund there. 216 00:10:13.480 --> 00:10:14.043 And then we've also got stocks in the portfolio that have not done well. 217 00:10:14.090 --> 00:10:15.105 There are, as Mr. 218 00:10:15.121 --> 00:10:18.918 Bickhart highlighted, trading very attractively from a valuation perspective. 219 00:10:18.919 --> 00:10:25.340 So if things start to drift and tilt in other directions, we think we've got other 220 00:10:25.340 --> 00:10:27.340 areas that will then bail us out and help us out from a 221 00:10:27.340 --> 00:10:29.340 risk management perspective. 222 00:10:29.340 --> 00:10:31.340 Hannes, thank you very much for your insight. 223 00:10:31.340 --> 00:10:33.478 Hannes van der Berg is Head of SA Equity and Co-Head of Multi-Asset at 91 in Cape 224 00:10:33.478 --> 00:10:33.756 Town. 225 00:10:34.921 --> 00:10:41.861 The views and opinions expressed in these podcasts are those of Lindsay Williams and 226 00:10:41.861 --> 00:10:43.861 various contributors and do not reflect the policy, 227 00:10:43.861 --> 00:10:45.600 position or opinion of any other agency, organisation, 228 00:10:45.943 --> 00:10:50.561 employer or company associated with StrictlyBusinessPodcast.com. 229 00:10:51.037 --> 00:10:58.006 Assumptions made on the analyses are not reflective of the position of any other 230 00:10:58.006 --> 00:11:00.006 entity other than the speaker or the author 231 00:11:00.006 --> 00:11:04.193 and since we are critically thinking human beings these views are always subject to 232 00:11:04.193 --> 00:11:06.193 change, revision, 233 00:11:06.193 --> 00:11:06.332 and rethinking at any time. 234 00:11:06.633 --> 00:11:09.039 Please do not hold us to them in perpetuity.