The world is changing fast and to keep up you need local knowledge with global context.
In this month’s upbeat recap of the Corion Report with David Bacher, we take a look at the rebound in markets in October as they regained some of the substantial losses that historic market volatility brought to 2022. He takes us through the drivers of the rebound and why local was lekker, as SA equities saw bullish recoveries on the back of ructions in global markets and an interesting bump from Asia. Bacher and Lucy Ferreira of BizNews also touch on whether or not 2023 is expected to be as hair-raising for investors – we’re happy to report that Bacher doesn’t think so, and certainly leaves us with a sense of reassurance for the year ahead. – Lucy Ferreira
Please see timestamps below:
(00:00:36) – David Bacher on the October report and putting the rebound into perspective
(00:01:28) – On the main drivers of the market rally and October rebound
(00:02:11) – On why “Local is Lekker”
(00:04:48) – On what has stood out the most for the Corion report of the month of October
(00:08:54) – On the carnage seen in crypto markets this year
(00:11:33) – On looking forward into 2023 markets and returns
David Bacher on the October report and putting the rebound into perspective
If you remember the September Corion report, we ended our video with the quote: “the darkest hour is just before dawn”. The local market has appreciated more than 17% since that interview. So it’s been a significant rebound. Equity markets are now up more than 6% for the year. And given what investors have been through, many would have doubted a little while ago that equities are now actually outperforming cash or money market instruments for the year. So it’s been a volatile ride. Opportunities have been present. But you have to endure the volatility to reap some of the benefits.
On the main drivers of the market rally and October rebound
The main driver has to be the US inflation print that came in lower than expected and that positively raised optimism that the Fed may start to ease up on its restrictive monetary policy sooner than expected. This coupled with many companies falling so much over the last few months were the ingredients for what was a significant rebound.
On why “Local is Lekker”
Fortunately for our clients, it’s worked out really well. If you think about why we came on the air and said “local is lekker” – there are two main, compelling reasons why we thought local equities would outperform offshore equities. Firstly, the local equity market was priced much cheaper than most of its offshore peers, and in essence, we thought that relative valuation gaps could close. And the second reason was that the dollar had become significantly, in our opinion, overvalued. So what we were hoping for was some some rand strength versus the dollar. So there were pretty much two ways to win. And last month, not just one of these things happened, but both. The relative market valuation gap slightly narrowed and the dollar weakened. So this combination was massive for local investors. In dollar terms, local equities outperformed US equities by more than 30% last month. That is massive. I’m not quite sure but I think if you date back much more than a decade to find out when that has happened before.
On what has stood out the most in the Corion report of October
In the report, the Corion team put out a video showing how the market value of Tesla has changed relative to Berkshire Hathaway in a really short period of time. I think listeners and watchers will find this quite astounding. At the start of 2019, the growth share of the darling share, Tesla, was valued at 10% of Berkshire Hathaway’s market cap. By September this year, yes less than three years later, Tesla is worth 150% of Berkshire Hathaway’s market valuation. And three months later, Tesla’s worth 80% of Berkshire Hathaway. We’ve had massive dispersion in valuations. And while we’ve found this interesting, it’s a great illustration of how the market often works. The fundamentals of the company can be rather similar over months, if not a couple of years. But how people perceive that can vary substantially. And these are the dynamics that create opportunities. And if you stick your neck out for what you believe are some long term investment principles, you often will be rewarded over the long term.
On the carnage seen in crypto markets this year
What happened this year in crypto, even before the FTX debacle, is another great lesson as to what happens when the hype meets reality. At Corion, we are not scared of sticking our necks out. Sometimes we know we will be wrong, but hopefully more times than most we’ll be right. And that’s investing. No matter how much you think you’re right, the market will often humble you. That’s what makes it so interesting. But fortunately, with regard to Bitcoin and cryptocurrency, and fortunately for our clients (although we’re quite unpopular at the time for posting that) at least it hopefully helped some investors to think twice before following the crypto craze. And in that video we shared our main concerns, where we listed ten of them, but probably the main few were that it was still unregulated and that there was a speculative frenzy that we’d never seen before. And since then the cryptocurrencies have lost about 70% plus of their value. So it’s been massive. So where to from here to answer your question – well, we still still don’t see the investment case in some of these assets or currencies. We are not experts in the field. So I must state that very clearly, but I guess going forward there will be positive outcomes from the crypto crash, there will be better regulation. I think a lot of the speculators have been flushed out, so potentially you’re going to have a better reflection of true value. In investing, you always got to look forward. You know, we’re not experts on cryptocurrency, but we like to think we can see a speculative frenzy when it to us seems pretty obvious.
On looking forward into 2023 markets and returns
It’s been a fascinating year. As I said earlier, it’s been a great year in terms of knowing how markets behave. And the biggest lessonI think we can all learn is what Warren Buffett famously said: Be fearful when others are greedy and be greedy when others are fearful. If you just followed that simple advice, you would have done really well because there were opportunities out there to be on the sidelines and to be heavily invested. And that takes discipline and going against the grain. If you follow those long term investment principles, you often reap the rewards.
- Corion’s ‘best ideas’ money managers beating market, Vintcent adds Kaap Agri to outperforming portfolio
- Sun comes out in October after September’s nightmare – Corion Capital’s David Bacher on keeping a cool head
- Go for local shares, avoid offshore – Corion’s David Bacher makes a big call after September’s “brutal” market fall
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