Analyst predicts bear market for festive period

Isaac Pinielo | Friday December 4, 2015 11:00

In an interview with BusinessWeek, researcher Tlotlo Ramalepa said the reason for the downtrend was because the blue chips would be heading for their year-ends and half-year end periods.

Blue chips are stocks in a company with a national reputation for quality, reliability, and the ability to operate profitably in good and bad times.

Ramalepa said through the year, there has been a huge rally within the domestic board, leading to stocks trading at relatively higher P/E ratios, making the stocks look unattractive. He noted that as a result, profit taking has been taking place and going forward.

“We are likely to see the same downtrend for most counters, particularly the banks whose margins have been under pressure due to the low interest rate environment,” he said.

However, Ramalepa said they expect potential upside from the property space, which offers higher than average dividend yields and most of them have been on a growth phase to widen their property portfolios. Also, he said the low interest rate means they could raise capital with ease.

“We advise investors to be always on the look out, as some huge sell-offs could present buying opportunities especially within the banking industry as our listed banks are well capitalised, offer attractive ROEs (return on equity) as compared to other neighbouring countries,” he said.

Ramalepa pointed out that the challenging environment for the banks did not necessarily mean deterioration of banks fundamentals, and therefore he said he maintains the positive long-term outlook for the banks.

Meanwhile, market information from African Alliance, an investment-banking group, showed that the bond market was up 0.4 percent for November, slightly below trend from the 0.5 percent recorded the previous month. The equity market was also up 0.4 percent, largely driven by the brewer, Sechaba after releasing acceptable results, given the company’s operating environment.

The hospitality stock, Cresta was also up, with Turnstar and Chobe performing well. Performance was largely muted by the large cap stocks, Choppies and Letshego. The best performer on the Botswana Stock Exchange (BSE) however was Lucara Diamond Corp, after making history by discovering a 1,111-carat diamond – touted as the second largest find in more than a century, which propelled the stock to go up 23.3 percent over the month. In terms of corporate activity, Barclays listed an ETF on the BSE, which tracks the performance of the Barclays/Absa South African Government Inflation-Linked Bond Index, an index comprised of bonds issued by the South African government, which are linked to the South Africa Consumer Price Index.

“We see this as a positive development as it will marginally add to the diversity and depth of the local bourse. In terms of asset class views, we continue to favour equities over money market and fixed income,” said African Alliance.

In addition, African Alliance said within fixed income they remain underweight to interest rate sensitive securities in anticipation of a gradual rate rising cycle.