On October 23, South Africa’s Sanlam Investment Management (SIM) and Institute of Behavioural Finance released the first of what will become a monthly report on investor confidence in the country.
The survey, the first such conducted in South Africa, polled local fund managers and financial intermediaries, covering a period of just over four months, from the beginning of June to October 10. SIM’s investor confidence index aims to provide an indicator of the mood of investors and report on movements in the market that could have an impact on investment decisions.
The index measures investors’ expectations in four categories: one-year returns, valuations, probability of a market crash and buy on dips.
The first edition showed investor confidence remained strong. Though 38% of participants felt the Johannesburg Stock Exchange (JSE) was overvalued, the remaining 62% said that the valuations were correct, with none of the respondents saying the market valuations were below where they should be. A full 70% said they expected positive returns from the market in the coming 12 months, in the order of 10%, with just 15% predicting negative results. So far the JSE has gained 29% in 2007.
“Not a single person surveyed thought the market was cheap,” said Fredrick White, the head of research at SIM. “The fact that they still saw trend returns from an overvalued market indicated that they remain quite confident of positive earnings growth.”
According to White, investors had faith the market would continue its steady rise and there was little fear of a crash as emerging market growth was seen as being reasonably secure, despite a slowing of growth in developed markets.
South Africa already has a business confidence index and a consumer confidence index. White said it was time for a similar study on investors, which he said would investigate the link between market events and investor behaviour.
“We know that there’s a big link,” he said in an interview with local media. “At times the one drives the other, and at other times it turns around. And we hope to over time study that link and gain some insight in terms of investor behaviour.”
While backing SIM’s project, Gcinikhaya Gobodo, head of equities at Capetown-based Renaissance Specialist Fund Managers, warned that conditions and expectations could change rapidly.
“Confidence indices always have valuable information, but they are not crystal balls,” Gobodo said in an interview with local media on October 23.
The results of the study would have been welcome news to reserve bank governor Tito Mboweni, who in the past two weeks has come under fire for overseeing another interest rate hike. The bank raised its base lending rate to banks to 10.5%, an increase of 50 basis points, on October 11.
Much of the criticism was focused on suggestions that tightening money supply by raising rates would slow economic growth, currently running at 4.5%, and reduce new investments. Though the initial SIM survey was completed a day before the rates rise, it had been flagged in advance by the bank and the possibility of a new round of increases doesn’t appear to have dampened the confidence of respondents.
Somewhat less welcome was the news that international ratings agency Moody’s might lower South Africa’s rating in its annual report, due out soon, owing to concerns over political stability.
Citing what she described as President Thabo Mbeki’s recent authoritarian interventions, Kristin Lindow, vice-president and senior credit officer at Moody’s sovereign risk unit in New York, said investors were now somewhat hesitant.
“Investors are certainly questioning whether or not this is a signal of a more authoritarian, rather than democratic way of operating,” she said in an interview published by the Business Times on October 21.
Investors want continuity in economic policies and a minimum of disruption, allowing companies to operate effectively and profitably, said Lindow. This stability needed to be guaranteed so that investors, and Moody’s, could be reassured about the future, she said.
Read More from OBG
