Equities are still looking good

2011-08-06 00:00

DESPITE jitters around the strength and sustainability of the global economic recovery, experts have still pinned their hopes on equities delivering adequate returns in the near term, above other asset classes such as bonds and cash.

Speaking at a presentation in Pietermaritzburg this week, chief investment strategist of financial and investment planning group Citadel, Dave Mohr said that on average, foreign and local-equity markets remain reasonably favourable from a pricing perspective.

He added that the prospects for global equity markets (particularly the United States) could deliver real returns of about eight percent, while the South African equity market has a real-return potential of about four percent.

This appears rather attractive when one considers that Mohr expects South African bonds to deliver three percent (before tax).

U.S bonds are not expected to deliver noteworthy real returns. Mohr placed U.S and South African listed property in negative real-return territory. On the whole, foreign and local company-earnings growth is expected to remain in positive territory on the back of positive economic growth, thereby increasing the likelihood of healthy dividends.

Mohr expects the relatively reasonable economic recovery to continue in South Africa.

He said the country has a growth potential of 3,5%.

Although risks such as rising consumer inflation and a slowdown in manufacturing activity could prove to be stumbling blocks to growth, Mohr said that the 30-year-low interest rates, strong global commodity prices and a relatively stable consumer-base could keep the local economy afloat. He expects JSE company earnings to grow at its current 30% year-on-year level.

The major risks to the global economic outlook are the Eurozone and U.S. debt debacles.

Although there has been a mild slowdown in economic activity in the U.S., Mohr expects moderate growth from the world’s largest economy.

There are several positive trends evident in the global economy, including the sustained growth in global trade levels.

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