David Shapiro on the value vs growth argument for 2022

South Africa’s favourite market commentator David Shapiro provides insight into a host of interesting developments that unfolded in the markets over the festive period. The US Federal Reserve’s December minutes spooked investors as the world’s most prominent central banker took a more hawkish stance on the accommodative policies that have been the primary tailwind, which has pushed markets higher since the onset of the pandemic. Despite this, the JSE was incredibly resilient over the holiday season, trading slightly below its all-time high at a shade below the 75,000 level. The Cristal Challenge – an investment competition where each participant chooses five JSE-listed stocks in an equally weighted portfolio – is discussed following its popularity in 2021. Interestingly, the most popular share in the competition, the Purple Group (parent of EasyEquities), was one of several companies in the BizNews portfolio that outperformed significantly in 2021. – Justin Rowe-Roberts


David Shapiro on the general sentiment in global markets 

It’s going to be tough. I think we are just going to have to work through the short-term news and the confusion. Investors are uncertain and confused about what the Fed is going to do. When the December Fed minutes were released last week, there was a suggestion that they were going to accelerate tapering. It also pointed towards raising rates earlier than the market expected. This was reinforced by the job numbers, where we saw the same thing; wages were going up, unemployment coming down, even though the absolute number of wages was below expectations. So, the market’s starting to build in that maybe this is the surprise factor. This is the negative news we never built in or hadn’t discounted that we’re going to get a rate hike ahead of expectations. But what kind of rate hikes are we going to see? Are we going to get rates rising to 3% or 4%? Or are they going to gradually creep up to 1%? At those kinds of levels, we can handle it, if there is not too much disruption in the markets. I’m saying that is what we’ve got to work through. That is the uncertainty we have to discount.

On whether there is promise in the Steinhoff turnaround tale 

I hope so. I mean, I don’t like to see companies go to the wall. I know they have still got a lot of issues they have to negotiate, particularly debt. Also, what is the structure of this new company going to look like? It’s mainly Pepkor at the moment. But what you say is so true; the company has now sparked up from a market value of what was around R4bn or R5bn to around R25bn. You’re now starting to talk about a big company again. I was looking at the share price and many people are backing this kind of recovery in Steinhoff. Let’s see; credit to management if they can bring it back to life. There has been plenty of of hard work. They are getting rid of the debt. Some of the claims – which I also think are not easy to deal with – take a lot of effort, paperwork and emails to get to where they are at the moment.

On the value vs growth argument for 2022:

I don’t know whether it is value per se but rather companies that have been ignored during the lockdown. If we do get normalisation, and I believe we will, these businesses will spark back. The question is, for how long? In other words, are you going to ignore the growing IT businesses that will be the substance of our lifestyles in the years to come? Are you going to push them aside for value? I suppose there are short-term plays in this value versus growth debate. I will be glad if some of those companies do come back to life. I still believe in a lot of the growth stories and you have just got to get through the cycle. I like to say, what is going to be there in three, four or five years down the line? What are those businesses that will change the way we live and our spending habits? That is where I want to be. The big issue at the moment – and I’m finding it fascinating – is this whole renewable energy story and the shift towards investment in renewables versus the old fossil fuel energy generation. If you are a value investor, you’re going to make money in energy stocks. There is still an opportunity there because money is not being spent on developing those businesses, but the world still needs them at the moment.

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