Outlook: High hopes for property, finance, retail

PROPERTY, financial and retail stocks would hold up the bourse this year, analysts said.

For the JSE to have a good year, the economy needs a boost. This could come from some movement in the interest rates together with a rise in demand for commodities.

John Orford, the senior portfolio manager for Old Mutual Investment Group’s MacroSolutions boutique, said for 2015, lower inflation and stronger growth should support equities, excluding the commodity sector.

Interest rates

Orford said interest rate-sensitive sectors, such as general retailers and property, had done better than expected, despite the weakness in the economy.

He said both property and general retailers had outperformed the all share index by 5 percent in 2014.

“If interest rates do not increase much over the next 12 months and the rand and bond yields remain stable, interest rate-sensitive sectors and stocks will likely continue to perform reasonably

Orford said his firm had been cautious on commodity-related shares. “We are still very cautious as the commodity prices have fallen a lot and we expect them to fall further.”

There was no big change to the drivers of commodity prices that would see a material increase over the coming year, he added.

He said financials and insurers would remain stable, mainly because their stocks were cheaper than other stocks.

“The impact of the low commodity price is favourable for the economy in a number of ways: it will help the trade balance of the economy, which should be helpful for the rand.

“Consumers will also benefit from spending less on petrol and will have a bit more to spend, which is good for locally focused companies,” he said.

Johan Rossouw, a Vunani Securities economic strategist, said local shares could underperform this year, due to the prospect of possible interest rate hikes in the future.

“We can have a bull scenario if we do not see any interest rate hikes, the economy stays closer to 2.5 percent growth estimation and we do not have any major electricity outages and labour disruptions,” Rossouw said.

Ron Klipin, the portfolio manager at Cratos Wealth, said headwinds for the 2015 market outlook would include uncertainty regarding the potential rise in interest rates, Eskom power cuts, patchy global growth outlook and weak commodity prices.

“Resource counters, which have been under pressure for sometime, are likely to underperform,” Klipin said.

He added that this was due to weak demand in China and Europe, while a strong US dollar would probably have a negative affect on most commodity prices. “This will result in a weak profit outlook.”

Klipin added: “A change in this outlook would require a consolidation, major cost cutting or closure of non-core assets and focus on cash flow generations.”