Corion Capital’s David Bacher says the stock market’s rollicking start to 2023 made this the 9th best January since 1960. But he has a word of caution for those piling back into shares: Corion itself has been selling into the strength on the view that US markets, in particular, are fragile. In this regular monthly recap with Alec Hogg of BizNews, Bacher outlines the reasons behind the January Jump and shares insights into the best way to play the volatile markets.
- David Bacher on the Jan jump – 00:52
- On if this is the beginning of a whole new bull market or is it another sucker rally in generally a bear market? – 03:53
- On why this could be what we’ve called a sucker rally – 06:05
- On their business portfolios and if they made any changes as a consequence of what they saw in January – 06:59
- On how far the markets are still off their highs – 08:39
- On the JSE’s two markets, resources and SA Inc – 09:38
- Which individual funds did best and worst in Jan – 10:23
- On Magnus Heystek’s view on the property sector and if he shares those views – 13:12
- On if he would be going onshore or offshore for the next five years? – 14:47
- On what funds he would put into his five year view and why – 15:20
- On how he’s reading the rest of 2023 is going to play out – 19:05
Extracts from the interview:
David Bacher on the January jump
Indeed, the equity market returns in January were, as you said, strongly positive and reversed December’s decline. The MSCI World Index, for example, posted a 7% return, and most other markets also posted compelling returns. Emerging markets, for example, are up 8%. And in South Africa, we followed those global trends, ignoring the Eskom fiasco. And local equities are up a similar amount. In terms of the start of the year, we’ve got data going back to 1960. This was the ninth-best January, so it’s nine out of 63 data points, it was extremely strong, but I think some distance still from a record breaker.
On why we had such a big rebound in January
It’s a bit of a disconnect for us, too, I think the biggest factor in terms of how the market is reacting has definitely been the changing and lowering of inflation expectations. And in turn, the market expects to be near the end of the rate increases. Effectively, the rally, I think, reflects optimism that the Fed will prevail in its efforts to tame inflation and cut interest rates and get the economy towards a more softer landing. So if you have to rewind the clock a few months ago, a lot of commentators were expecting a hard landing. That seems to have changed. Once again, it’s really driven by the Fed driving market prices. And that’s been in our interpretation, the reason behind what has been a very strong rally.
On their business portfolios and if they made any changes as a consequence of what they saw in January
Definitely, we’ve just come out of our association meeting and as I said earlier, we’re still quite favorable toward South African equities. So we have done very little realigning there. But we have used the opportunity over the last couple of days to cut back more on our US exposure as opposed to global equities. I think other equities, such as in emerging markets, European equities, you know, those valuations aren’t as stretched as the US. So yeah, the focus from a Corion perspective is to cut back on US equity exposure.
On Magnus Heystek’s view on the property sector and if he’s of the same view
I think we agree with the thesis. The difference I think might be out of turn between ourselves and Magnus is that, you know, Magnus takes a very big picture of the macro environment and trends and he’s largely got that right over the last ten to five years. He’s called it early and been quite vocal and hats off to him. But where we do disagree is your latter point about a bad environment or a bad company. Sometimes it can be a good investment because everything is priced at a point, but we’re no property experts in terms of residential and commercial; that’s not where we play. But just broadly speaking, yeah, prices sometimes overshoot on the upside but also on the downside. So I think you got to take into account where property prices have come from and which region you are in. And I know that Jo’burg has particularly borne the brunt of the depressed property market on the residential side, but at a point in time, it will offer value, and who’s to say we’re not close to that?
Alec Hogg’s interview notes
- Corion’s review of 2022 for SA investors – local was lekker and a big shout out for Fairtree, PSG
- Corion’s ‘best ideas’ money managers beating market, Vintcent adds Kaap Agri to outperforming portfolio
- Magnus Heystek – Property: a destroyer of wealth