Old Mutual Investment Group

Portfolio Manager, Peter Brooke, talks latest market opportunities on The Money Show this week

September 27, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Portfolio Manager, Peter Brooke, talks latest market opportunities on The Money Show this week
Show Notes Transcript Chapter Markers

Peter Brooke discusses the slightly more tempered markets that started out the week, as well as the question of whether opportunities in UK assets are starting to present themselves as the pound reaches record lows. 

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Bruce Whitfield  00:18

Let's go straight to our market commentator tonight, Peter Brooke. Now, Peter Brooke is with the Old Mutual Investment Group. He's in studio today. Markets were less wild today than perhaps one might have feared they would be, considering this enormous global sort of fallout that we're feeling but not really seeing manifest in markets. Or was all the damage last week?

Peter Brooke  00:37

That's right, Bruce. We actually ended up 3%, having been down nearly a percent at halfway through the day. And I think it's really just about markets are forward looking machines, so the last two weeks have been particularly bloody. So, re-basing of global interest rates has come through quite promptly. So, there are some lagged effects, you know, Investec came out with their trading statement on Friday, but they were pretty weak today, 5% - well, 4.6 or so.

Bruce Whitfield  01:04

5%, round it up. 

Peter Brooke  01:06

Down. And so, big UK business. So, there could be a little bit of those type of trades coming through. But the other side was, obviously we had a strong performance from Naspers and Prosus. So, that's such a big impact in terms of our market, which helped prop it up.

Bruce Whitfield  01:25

Do you see... I mean, Gulam has alluded to it. I mean, not just yet. But opportunity is beginning to manifest in UK businesses. So, we saw Hammerson, for example, Capital & Counties take a bit of a bath on the day, you know, these are intraday moves, they're nothing in themselves. But are we seeing a sort of a revaluation of UK plc, which goes in our favour in any way?

Peter Brooke  01:48

So, I think - I mean, there will be interest in buying UK assets. It's a big country, it's important. And if you actually look at it, Europe has been buying assets. The French have been quite a lot of FDI. The problem with FDI, though, is that you then take the dividends out afterwards. So, remember, the UK has lived on the kindness of strangers. I think the last time they had a current account surplus was in 1982. So, they are not saving enough, and therefore, if you're selling assets to pay your way, eventually you run out of assets. .

Bruce Whitfield  02:19


Peter Brooke  02:20

Just - in terms of the impact on South Africa, obviously, there are lots of different moving parts. But really what stands out is maybe we could give a little bit of credit to our own government and our own people for not being crazy.

Bruce Whitfield  02:39

Well, we'll see the medium-term budget policy statement. But I mean, the fiscal probity has been the hallmark, certainly of Enoch Godongwana so far. Tito Mboweni set the tone, of course, coming out of a period of crazy in terms of - I've even forgotten the sequence of events. But we had lots of finance ministers in short succession, including that well known filmmaker, what's his name? Malusi Gigaba. We went through a really rough patch, yet the Reserve Bank held the course and provided stability. Tito Mboweni came in, introduced quite a lot of austerity. And Enoch Godongwana seems to be pursuing that same line.

Peter Brooke  03:19

That's true. I mean, the truth is, under Jacob Zuma, we walked to the brink.

Bruce Whitfield  03:23

Yes. We actually sprinted, and then did a handbrake turn at 180km/h!

Peter Brooke  03:27

But that is the beauty, is we haven't ever gone over the brink. And what's interesting about the UK, of course, is it's one of the first developed markets to really start looking like an emerging market. 

Bruce Whitfield  03:38

Explain that. A lot of people have been sort of doing them sort of tongue in cheek, but they are behaving like many emerging markets do when they get into a spot of bother. They start printing money, or they start cutting interest rates, or they start expanding the fiscus by borrowing too much.

Peter Brooke  03:54

So, I think it's really about the combination of monetary and fiscal policy together. So, they have had traditionally tight fiscal and loose monetary.

Bruce Whitfield  04:05


Peter Brooke  04:05

They've now pivoted to the other way around, where they're going loose fiscal and that will force tight monetary. In other words, interest rates from the Bank of England are gonna go up higher than they would have. 

Bruce Whitfield  04:17

Andrew Bailey is already saying it. He is the Governor of the Bank of England, saying they will do whatever is necessary to bring inflation back to their target, which is 2%. And at the moment, they're running double digit inflation.

Peter Brooke  04:27

So, the problem there is if you borrowed a lot of money to buy a house in the UK, you're going to take a lot of heat. But on the other side, the government is giving you a subsidy on your energy costs. So, the consumer is in better shape than it would normally be. But behind that, you start building up debt. So, the UK public debt to GDP was 25%. It's now 95%. Once again, that's not - that's manageable if you have good domestic savings, if you have-

Bruce Whitfield  04:59

Wealthy grandchildren. Because they're going to have to-

Peter Brooke  05:01

If you're becoming more competitive, if you're exporting more goods, but the UK is not doing that. They've actually gone backwards in terms of competitiveness. So, it's tricky for them.

Bruce Whitfield  05:14

It's such an interesting place that we find ourselves in, and JSE knocked down to, the levels, worst levels in a year. You know, the JSE, I think was at where it began the year this year at 63,000 odd on Friday. A little bit of a recovery today, there must be hugely tempting valuations on the JSE that you either go in on and buy shares, and you know, hit, hope and pray, or you wait on the sidelines and wait for things to get a little bit worse on global economies and markets.  

Peter Brooke  05:44

There's always opportunity. So, today, for instance, Tiger Brands came out with their trading statement-

Bruce Whitfield  05:49

It was huge!

Peter Brooke  05:50

It was better than expected. 10% up on the share price. The one that I'm interested in is Remgro. So, their results are coming out tomorrow. But they announced that they will be unbundling their green rod shares. So, they own 25% of Grinrod, and they're going to give that out to shareholders. But now remember, they're a conglomerate, they've got loads of different assets, and what they're doing is, they're going and tidying it up. So, there was a report last week about selling their total stake, which, once again, I think they own 25%. They've taken Mediclinic private, it's every... I mean, it's clicking along almost sort of one a quarter now, of corporate announcements of applying capital to their core businesses, exiting non-core businesses. But the beauty of that is they trade, let's say they're worth a Rand, they're trading at 60 cents. So, every time you release value like that, as shareholders, we get that value. So, we've added it into our client portfolios, a little while ago. And the reason for that is you've got clear corporate value unlock. But also you've got a safer space to be in, in what a very challenging and volatile market, so much more of an absolute return type mentality: preserve capital, but you can still grow and deliver returns to your investors from here.

Bruce Whitfield  07:12

Peter Brooke, he is with the Old Mutual Investment Group, on a day where the JSE added 209 points, 1/3 of a percent amidst huge volatility on the day. At one stage this morning, you could have paid R18.80 for a pound. As the show started this evening, you would've paid R19.53 And as I speak to you now, R19.30 for a pound. It's massively volatile. It's all over the place.

Discussing a more tempered market than we would have expected
Are we seeing a revaluation of UK plc?
Impact in South Africa - giving credit to our own government and people
How a developed market like the UK is starting to look like an emerging market
Looking out for opportunities on the JSE - Remgro