As a, you need to develop a view on where exactly you think the is in its – is it and close to the , and close to the or somewhere in the middle? There can be very little doubt that generally move from being optimistic about the future to being pessimistic - and back again over long periods of time. So, where exactly are we in this cycle?
After theof 2008, markets bottomed out in March 2009. Business and consumer at that time was terrified and fear was definitely the dominant emotion. The was then subjected to unprecedented and sentiment gradually stabilised. By February 2020 sentiment was finally beginning to move towards optimism and consumers were beginning to spend again - when the pandemic hit.
caused a short, eight-month hiatus during 2020, but by the end of the year, with the US elections over and additional stimulation, consumer confidence was once again rising strongly while the was breaking new s. Now, in mid-2021, with the roll-out of vaccinations gaining momentum world-wide, spending levels, especially in America, are again reaching extraordinary levels and the is becoming more and more optimistic.
So, the question must now be, “Are we close to the top of this cycle?”point out that this is the longest since World War II and that the (P:E) of the S&P500 is at a historically high 46. s are moving further and further away from the of the which they represent.
You need to take a view on whether theis at or close to its highest level or whether it still has some distance to go. There can be little doubt that greed has now replaced fear as the dominant emotion in markets worldwide and we must certainly be closer to the top of this cycle than the bottom, but that does not necessarily mean that you cannot still make good money from shares.
The level and duration ofand of world economies has been unprecedented and , although beginning to show signs of emerging, remains mild. A new tightening cycle still appears remote, even with the US ’s (MPC) now talking about 2023 rather than 2024.
Markets are still able to shrug off bouts of negativity by considering the amazing and on-going growth in S&P500 companies’. A swarm of new technical innovations promise massive disruptive leaps in which must surely be reflected in future share prices. The price, while rising, is still only about half of its mid-2008 peak. Our view is that this market still has some distance to run, despite the negativity of well-known analysts like Michael Burry, Cathie Wood and even .
But, the fact of the matter is that we are in uncharted waters and nobody really knows where this market is going. There has never been a situation like this in the world economy before. Indeed, the concept of the “world economy” in its current form is itself a relatively new development which has not really existed as it does today during previous cycles. Nobody can really say what the impact of new technologies like those being brought to market by Elon Musk and others is going to be. And, in the background, looms the significant, apparently imminent and undeniable impact ofwhich investors are definitely not yet factoring into their calculations.
Here in South Africa, we are at the whip-end of the world economy. Boomingprices are yanking us out of the while compensating for both COVID-19 and the recent civil disturbances. If we can just maintain stability for a year or two without shooting ourselves in the foot, the prospect of a strong economic recovery seems inevitable. Consider the :
Unlike the overseas markets, ouris still on a P:E of just 19 and there is certainly considerable value in our . The same can be said of our government which offer some of the best s available in the world. What is notable is that since February this year the Overall Index has been moving (the upper chart) while has been breaking new record highs. In our view, this relative under-performance (shown in the lower chart) offers the opportunity for catch-up as international sentiment shifts back towards “ ”.
We believe that international shares like Prosus on a P:E of 25 and Naspers on a P:E of 20 look very cheap. Theis on a P:E of 17,3 and the (JSE-SAPY) has broken clearly up into a new . So, provided the world economy continues to become more optimistic and we don’t do anything foolish, there is definitely an opportunity to profit from over the next two years.
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