Writing in the latest PSG Asset Management quarterly newsletter my friend and former colleague, Philipp Wörz has highlighted that it’s not just foreign asset managers who think that developed market valuations are starting to feel quite stretched, but local managers are very aware of this too.
“Global equities have been in a bull market ever since the 2007-2008 financial crisis. With both the MSCI World Index and the S&P 500 trading at over 20 times earnings, they are well above long-term averages. Positive sentiment and strong returns in offshore markets may act as a lure for wary South African investors. But the case for cheap offshore equity valuations – and corresponding opportunities for strong long-term returns – is becoming weaker by the day.”
“Many ordinary South Africans and other market participants are fearful and uncertain of the local economic outlook. We have therefore seen a ‘rush for the exit door’ to invest money offshore. While this may feel like a safer option, we believe that current fear and uncertainty are creating an environment for attractive long-term investment returns. That being said, we remain bottom-up focused and are still finding attractive opportunities across the globe despite the rise in overall market valuations. In many cases, these opportunities will not leave the average investor feeling ‘warm and fuzzy’ – many of them are in unloved parts of the market that offer a greater chance of mispricing.”
It is also noteworthy that, as valuations have generally increased globally (and thus risks have risen), PSG’s cash holdings in their funds have increased.
Read the full article here.
Comment: The long-term case for South African investors diversifying assets offshore remains in place but it’s not a one-way bet. People who invested in the darlings of the Nasdaq at the height of the dot-com bubble at the turn of the century will be fully aware of the dangers of investing in over-priced assets and how, by doing so, one can incur permanent capital losses.
Buying cheap quality assets – wherever they may be found – remains one of the best ways to avoid losses and ensure good long-term growth.
Disclaimer: The information provided is not intended to address the circumstances of any particular individual or entity and should not be considered to be advice in any way. No person should act upon this information without first obtaining professional advice.