We know we have been in a Business Cycle Recession (declared by SARB 12 months ago) since 30 Nov 2013. Given some tentative "green shoots" we are now seeing such as a modest global economic recovery, a strong rebound in commodities, a possible peak in foreign selling of SA bonds and stocks, an improvement in the leading economic indicator, and moderately improving market breadth, which shares should we look to in anticipation of outperforming the JSE in any subsequent "recovery"?
It’s quite instructive to start at the sector level and with this, we can look at what sectors out-performed the JSE TOP40 Index coming out of the prior 2009 Great Recession. In this particular scenario, over a 5-year horizon, Auto, Personal Goods, Household Goods and Forestry out-performed the index by quite significant margins. The TOP40 rose 160% in the 5-year recovery and all the sectors displayed below at least DOUBLED the TOP40 total return:
(Click image to enlarge)
The Auto sector recovered the most, but you should bear in mind (as with now) that at the height of the economic recession, it fell the most. Also, given the large capital expense nature of the Auto sector, it was quite a laggard coming out of recession, and was outperformed by Personal Goods (far cheaper products) and Household Goods (more of a semi-durable as opposed to a durable like Auto).
If we want to raise our odds of outperforming the market then perhaps these are the sectors we ought to be looking at for shares in our investment portfolios.
Surprisingly, none of the gold miners, platinum miners, the mining index nor the Resources-20 indices managed to outperform the TOP40, at most reaching 50% of the growth achieved by the TOP40 itself over the 5 year period. Now that’s something worth considering when pondering over those juicy beat-up commodity and mining counters.
Dwaine van Vuuren
RecessionAlert, PowerStocks Research
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 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.