Senior Portfolio Manager at Coronation Fund Managers, Anthony Gibson, said this week that the seemingly super cycle of growth in the equities market would maintain momentum for some years, “of course, with market corrections.”
The bubble is not going to bust anytime soon as investors around the world are more than happy to take risk. The strength of the market is equally backed up by low volatility, credit spreads, relatively benign international inflation outlook, strong profit growth registered by multinational corporations and relative investor immunity to global terror threats.
With that in mind, he said the current bull-run in the capital markets is expected to continue for at least a decade or little longer.
Gibson said in recent years, a lot of money has been pumped into the global equities markets and that saw even emerging markets getting a significant share of the spoils. In index terms, the emerging markets were virtually at zero mark in 2003 but have since shot up 300 percent. This, Gibson says, is explained by the re-rating of the emerging markets. The re-rating has even seen little known Kazakhstan being treated, investment wise, alongside the likes of the United States of America.
“It sounds crazy but investors’ preference between Kazakhstan and the US is the same because the yield on bonds in the same countries is the same,” claimed the Coronations think tank.
China and India are some of the emerging economies that have added impetus to the equities markets’ bubble.
“China is a hot place now. As we know, China is still a relatively communist country and recent data has shown that there are more people in China with stocks’ accounts than there are members of communism,” he claimed.
However, Gibson is worried by the rush to the East, saying investors should tread with caution.
“People have now lost sight of risk in the bubble. Investors are not pricing against risk and time would come when they now have to re-assess their risk but I don’t see that happening in the short term,” he noted.
The same vigour displayed in China and India has occurred in the past when Japan and Russia embraced market driven economic concepts.
He further warned that liquidity might be one of the biggest variables that contribute to the increased robustness of the money markets but it should equally be appreciated that liquidity is a function positive investor sentiment. The bull-run can only be maintained in the short to medium term only if sentiment remains the same. He added that one of the factors that can rock the ship is the issue of technology.
“The technology sector can act as an early warning of the changes in the market.
At least we would now be able to tell what is likely to happen because a lot technology is being driven by the European states which have left the retail sector to countries in Asia,” he said.
The bull-run that Gibson mentioned is not only peculiar to the foreign market, even domestically the share market in the local bourse has experienced over-subscription. Just a few months after the blue chip Barclays Bank Botswana undertook a share split, its peer, First National Bank Botswana, is equally mulling over the idea. FNBB is arguing that its shares have become more expensive and exclude retail investors.