I enjoy interviewing Orbis’s UK investment head Dan Brocklebank. He always makes me think differently. Something Dan may well have picked up from his mentor, the late Dr Simon Marais, who worked with him in London before moving to Sydney to establish Allan Gray in Australia. For instance, three years ago Brocklebank swam against the City of London tide by suggesting Brexit (a) might well happen and (b) might also be good for the UK. We didn’t get into that discussion in this interview during the latest episode of Personal Finance Live, because the focus was on why Brocklebank isn’t fretting about new UK PM Boris Johnson who was confirmed only minutes after he put down the phone. Also, there’s a whole lot more to think about right now, that’s more relevant to investors – like the fact that investors were effectively prepared to pay the German Bundesbank to acquire its zero coupon bonds last week. – Alec Hogg
An in-depth interview in investing with the UK head of Allan Gray’s sister company Orbis. In this discussion Dan Brocklebank fleshes out his views – and ends up telling us why Chinese company NetEase is his favourite stock right now.
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Orbis is a bottom-up investor and thus the big trends are not that relevant, and Brocklebank says it’s incredibly difficult to invest based on political forecasts, because even if you forecast correctly on a top-down view, it’s incredibly hard to know how stock markets will react.
He emphasises that the UK is just a small portion of the world index – 7% – and even for South Africans who have an affinity with the country, it’s far better to look internationally: “Why would you want to constrain yourself to such a narrow slice of the global market?”.
On Boris Johnson, the new UK Prime Minister, Brocklebank says no-one really knows what BJ stands for politically or how Brexit will play out under his direction. He reckons the outcome is “wildly unpredictable” but fortunately for investors, Brexit is merely a “pimple” in the global investment arena.
He also points out that the top 10 stocks make up 12% of the world index and have been performing very strongly, which is quite common after a period of technological change.
But valuation spreads are very wide (the gap between valuations of cheapest and most expensive half of the market). Another distortion exists in the fixed income space where bonds offer return-free risk with nearly $13trn of bonds now having negative yields – on July 11 Germany sold 10 year bunds with 0% coupon, which sold at 103 cents on the dollar. Has Mr Market gone mad?
