Smart money must be routed to four sectors - BOE
May 17, 2009
By Donwald Pressly
The smart money - which is channelled to "the right" investments - should turn to four sectors in the coming months: telecoms, banking, mining commodities and retail operations with a focus on food and clothing, says BoE chief investment officer Daryll Owen.
Speaking at a briefing on the political economy at the
BoE headquarters at the Waterfront in Cape Town – together with political and trends analyst for BoE private clients JP Landman – Owen argued that banking looked promising in the environment of a possible 3 percent gross domestic product growth rate next year and
with interest rates likely to drop further next year.
Turning to opportunities in the market during the current
downturn Owen said that he would avoid “the small caps
generally” although there were some good evaluations in the market. “People are going to ignore them because of the liquidity issue,” he argued.
Owen said that clothing and food product retailers had invested large amounts of capital into their operations “throughout this correction stage”. They included Truworths, Foschini, Spar, Shoprite, and Pick n Pay.
In the context of expected interest rate cuts in the coming year, of a possible 300 basis points altogether, he expected that the extra spending power would initially be directed at food and clothing and possibly in the longer term at such items as furniture. This could see a pick up “on the furniture side”.
On banking, Owen said there had been an environment
in which bad debt levels were getting worse “but a lot of that is discounted at the moment”. The price to earnings ratios were reasonably priced, he argued. On the assumption that interest rates started to decline, this would be good for banks in the longer term.
There was normalising in global commodities markets.
Copper demand was strong from China, for example. Commodity prices were in a bubble, then they had dropped sharply and he suspected there would be “some stabilisation” of resource shares going forward.
“Most resource counters have been oversold,” he said.
Bigger companies like Billiton were likely to do well once the markets stabilised.
On telecoms, he said that people were concerned about
MTN’s Nigerian operations but its subscriber figures were
good. They had managed risk well. “They have growth potential,” Owen said.
On the retailers he said a lot of money had been put “in this correction phase” and shares have held up well in the food and clothing retailers. As interest rates come down – and consumers have more discretionary spend – good quality clothing retailers would benefit. It may take longer for the furniture retailers to benefit.
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