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Hi All

There seems to be a subtle change in the local stockmarket lately. I have seen it referred to as a cyclical rotation. It has only been visible for a month or two and not in any great measure either, but is not alone on world markets.

Of course it is far too soon to confirm any trend, but if these “green shoots” are anything to go by, it signals something pundits have been expecting for a long while now. The well-documented growth over value discussion has raged for nearly a decade and, despite repeated reminders from economic scholars and many money managers to expect this gap to close (reversion to the mean), all that happened is it has continued to widen. There has arguably never been a bigger valuation gap between the winners and losers than there currently is on most world markets. How that manifests locally is the huge gap between Rand-hedges (who derive most of their revenue offshore) and companies who derive the majority of their revenue locally (RSA Inc.).

Offshore is more intricate but the story is the same. Take tech shares vs industrials as an obvious example. Even a school child can understand there is a thing called the 4th Industrial Revolution which is, like its predecessors, having a profound effect. One such effect is that some industries are being rendered redundant, such as fossil fuels. This has been coming for a long time and will take a much longer time to fully manifest, but it is inevitable. There is no longer any object in wishing it away or denying it is happening. Rather to embrace it and become part of the change and make that work for you. There are some oil giants who will successfully transition and survive as a result. Many, perhaps most, others will perish.

I use this simply to illustrate a necessary change which has been exaggerated, together with many others, to mean that there is literally no future other than tech/new world or that everything will be disrupted by it. That now reflects in virtually all tech shares being priced like there is no end to their growth and almost every industrial the opposite. That never ends up being the case anywhere and there have been stirrings in prices of shares in good companies whose prices were unnecessarily beaten up just because they formed part of a certain group, not because they had no future. Locally, that has been the banks, property stocks and selected industrials.

For me this is a welcome change and may it blossom into a trend that makes money for all of us.

More next time

Kind regards,

Ricky Williams
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