Local is lekker again: March’s pullback in SA stocks makes them a ‘buy’ – Bacher

It was a bumpy March for investment markets, especially on the JSE, where share prices followed the rest of the world lower – but did not participate in the late bounce. However, Corion’s David Bacher reckons that divergence opens up a buying opportunity for active investors, and his house has gone overweight SA stocks to take advantage. In this monthly recap, Bacher also shares which money managers are hot (and not) by performance and flow of funds. He spoke to Alec Hogg of BizNews.

Extracts from the interview:

David Bacher on what happened in March

So in our monthly Corion video, we titled it ‘Surprise, surprise the markets rise.’ And we thought that the title was apt considering all of the events of the prior month. I mean, it was crazy to think that less than two weeks ago, most investors were extremely concerned about the global banking industry. And yet global equity markets rallied when risk seemed to have subsided and ultimately global equities ended the month up just over 3%, and global bonds also had a wild but ultimately profitable ride. The yield on the US two year treasury soared past 5% for the first time since 2007 in early March. Bonds also had a very impressive month of 3.8%, but South African equities unfortunately did not fare well and they depreciated by just over 2% for the month. 

On if they’re making any changes as a consequence of the pullback in South African stocks

Yes, we are. If you would recall, at the beginning of this year, we communicated that our clients’ assets were in either way – South African equity positions are based on valuations, and that worked well for our clients the previous year. But, you know, we thought the valuation gap had narrowed and we moved that back to more of a neutral, balanced exposure. But given what’s happened in the last quarter, with South African shares underperforming, and the US in particular is doing well in overseas markets, we’ve decided to slightly increase that tilt to South African equities once again.  

Read more: Corion’s David Bacher unpacks Feb’s Resources Rout – points us to fresh investment opportunities

On why South African markets lagged in March relative to the rest of the world

So if you actually break down the attribution of which sectors performed well over the last month, I talk on a global scale. You have significant sector swings. Technology shares in the US were up about 9% while banking shares were down. And if you look at how the markets are actually broken up internationally, you know, in the U.S. you have a much larger component to technology shares. While in South Africa we have the reverse. We have a very small technology sector and a very, very large financial services sector. So, you know, obviously the economic growth and Eskom issues are still very much headwinds. But if you actually look up at the breakdown of our index, you can actually see why we did a lot worse than overseas markets. 

Read more: Corion’s review of 2022 for SA investors – local was lekker and a big shout out for Fairtree, PSG

On how Fairtree were able to be the year to end-March best performing equity fund

Hats off to them. They’ve had an unbelievable period and are probably the fastest growing asset manager in South Africa. If I had a look at the last 5 to 10 years, I think the assets have grown to north of 80 billion. And from a very small boutique manager that’s on the back of some good investment returns. And I think where they’ve been particularly strong is actually getting their sector allocation right. In South Africa where you have a market that has resources and financials and they tend to do well at different times. Your ability to rotate between those two sectors, if you get that right, that’s a massive boost to performance. And they’ve generally more often than not got that sector rotation right.

Read more: Corion’s Bacher on why ‘local was lekker’ after a bumper market rebound in October and a hopeful outlook for 2023