In this radio interview Meryl Pick sheds light on potential opportunities amid the turbulence. From cyclical rotations to home market bias, her perspective unveils hidden prospects even in uncertain times. As once said, "out of crisis comes opportunity" – a sentiment echoed in today's investment landscape.
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In this radio interview Meryl Pick sheds light on potential opportunities amid the turbulence. From cyclical rotations to home market bias, her perspective unveils hidden prospects even in uncertain times. As once said, "out of crisis comes opportunity" – a sentiment echoed in today's investment landscape.
Thanks for listening! Follow us on Linkedin.
Bruce Whitfield 00:00
To Meryl Pick we go. Meryl is a Portfolio Manager at the Old Mutual Investment Group. And it's like the Grinch took a holiday over Christmas and just decided that January wasn't grinchy enough and is going to spread the grinchiness into February as well, Meryl, particularly in the resources and gold sectors this afternoon.
Meryl Pick 00:21
Good evening, Bruce, and good evening to your listeners. Yes, very little green across the board at the end of the day. And, in particular, the resources sector leading the charge down. And it's difficult to speculate on the day what is driving that. We have had a view that, you know, globally, we are headed for slower growth and a lot of economic data up to this point has proved to be quite resilient, in particular, in the US, but given the amount of interest rate hikes that have gone into the system, we have held the view that growth will slow down, this will start to hurt corporates and consumers at some point. And commodities being the cyclical beasts that they are, would suffer from a decrease in demand. So, we are suddenly starting to see particularly the PGM sector taking hits, as those commodity prices rollover, and certainly, strong demand out of China for vehicles would have helped to bail that out. But as we know, China's recovery following Covid has also been disappointing and has not come to the rescue to bail out global growth. So, we do think this is just a result of a cyclical rotation.
Bruce Whitfield 01:55
Ja, and it's, again, we take things terribly personally, of course, because I'm just sharing some figures out of the Reserve Bank that Kevin Lings was crunching, and just talking about the last 10 and a half years. The disinvestment from South Africa by foreign investors in the bond and equity markets over the last 10 and a half years, which correlates quite nicely with the deceleration of the economy with the issues around electricity provision and the gradual destruction from inside of the Transnet's of the world and the SAA's and everything else. That loss of confidence, of course, has drained an enormous amount of confidence out of the markets as well.
Meryl Pick 02:37
Absolutely. So, in particular, the SA facing names, so if you exclude the dual listed’s, we can see that almost disparity and additional pressure on those names, you know, as liquidity thins out at that segments of the market, it also makes it sort of an amplified effect, shall I say, because it falls out of certain index funds, etc. But particularly for the smaller scale, and maybe for the retail investor, I think that creates some opportunities that at times institutional investors because of their size cannot access. For example, something like Sun International today confirmed that their circular is out for the acquisition with the Peermont Group. Even that deal comes as a result of private equity investor wanting to withdraw from South Africa wanting to crystallize their investment. But this is giving a potential consolidation opportunity for a company who is still listed on the JSE, still delivering good returns and equity, doing a reasonably low risk acquisition in their home territory in a business model that they understand. So, for people who can access investments at that liquidity point, there are still opportunities.
Bruce Whitfield 04:03
No, but exactly right. I mean, again, Stephen Koseff, when he was Chief Executive of Investec would love to quote Tsun Zu and "The Art of War", "out of crisis, of course, comes opportunity". And, you know, so where one lot decides that there's too much risk or just a little bit too difficult, a little bit too awkward. Somebody inevitably puts up their hand and says, actually, I'm willing to take on that risk, and I just shared the story, and if you've seen it, it's not going to change the world, it certainly may change people's lunchtimes a little bit. But something small, like Pret A Manger coming to South Africa, global brand, coming to South Africa and tantalizing tastebuds a bit. It's just that sense of actually, you know, properly chosen opportunities do exist and can live side by side with the mess and the noise that sometimes exist.
Meryl Pick 04:50
Globally, there's an investment [inaudible] known as home market bias. I think sometimes as South Africans we have a home market pessimism. Which, when emerging markets, I mean, you've written books about this literally, when emerging market investors zoom out and look at South Africa relative to the other opportunities, we do have issues. I think the beauty of those issues is that should we, maybe I'm just being an eternal optimist, should we fix those problems, we could actually prove to be quite counter-cyclical into a slowdown, because many of our problems are self-inflicted. They do not require a great macro-economic backdrop to fix inefficiencies, that's Transnet, inefficiencies at Eskom, and we can lift our GDP in a falling GDP market purely by doing the right thing. So, there's that. But then also, if you compare us to the spectrum of emerging market investments, do remember we are still in the company of Russia, Turkey, within Africa, you know, if you look at what's happening with the naira, how that is unfolding and collapsing, every day you can come in and just add another 100 to the naira to the dollar. Inflation is in hyperinflationary territory. We have a stable currency. We have a stable inflation outlook. We're paying the price in terms of growth for those institutions maintaining their discipline. But South Africa is by no means un-investable.
Bruce Whitfield 06:30
And at that point, we will leave it, Meryl Pick, thank you very much indeed. Portfolio Manager at the Old Mutual Investment Group this Monday evening.