We have had a brutal 4-year bear market and two recessions since 2008. Add to this the Steinhoff corporate scandal that wiped billions off investors clocks and 40% plus share price collapses in many large caps that have left investors battered, bruised and bleeding.
People are turning their backs on the JSE in their droves and fund redemptions are sky-rocketing. There’s blood in the streets despite the relatively mild 20% drop in the headline index. We may not have the intensity of a 40% crash but we certainly had a bear market duration almost triple the duration of the normal one.
Those of you who have been following my views on Sharenet since 2015 must be getting really bored with all the warnings we have been posting. It is really hard to be a bear as nobody wants the bad news and it is never received well. But I am convinced we are nearing a bottom.
The final cue for me is that fixed interest products are now all the rage with ABSA 13% this and African Bank 12% that. Just about every website you visit throws up tempting fixed deposit adverts and all you hear on the golf course and braais is who has what fixed interest product with whom. The reality is, according to my research, there is lots of fine print in these deals and the complexity and terms and conditions could easily lead to unexpected outcomes. The one option with the least fine print and conditions, in my opinion, is the Sharenet Income Plus Fund, which is a Unit Trust with daily liquidity yielding in excess of 10% per annum.
When fixed interest is all the rage you just know people have all but turned their backs on the markets, around the time the bottom of the market starts forming!
But you do not have to use intuition, experience or your gauge of the public psyche to make a call on an impending market bottom. You can also use quantitative analytics.
As an example, look at the chart below that spans several business cycles. The JSE is now cheap at a Price/Earnings ratio of 15.97. In fact, since 1996, every time it was this cheap, it was always near a major bottom! (click chart for larger version)
The stealth climbdown in valuations (P/E) is a combination of the JSE falling 20% and earnings rising 12% over the last year.
It is hard to tell if we bottom now or January or even March. Another 10-15% drop in the markets from now would not be at all surprising. All you need to know is an opportunity is building, around the time people are the most pessimistic about the markets - and you at least need your stockbroking account charged with some gunpowder when the time arrives or risk being Joe Public that is always entering en-masse into the next asset class at exactly the wrong time. The right time to be getting into an asset class is when it feels wrong! Some of my best trades I ever made were extremely uncomfortable to put on and even more painful to sit through before they began to yield fruit.
This is the last note for 2018 and we will be back around the 2nd week in January. Until then, ponder the data in this message, have a good rest, spend quality time with family and above all drive safely.
For details on the Sharenet Income Plus Fund, click here.
To open a Sharenet Securities Account with the cheapest brokerage in SA, click here. As a bonus, this gets you Analytics for half price or even FREE if you qualify. To see if you qualify, contact Jerome on 021 700 4828.
Alternatively, contact us on (021) 700 4800 as we are working through to 21 December.
Dwaine van Vuuren
RecessionAlert, Sharenet Analytics
Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.