The JSE, which is on track for its worst year in a decade, can still provide good returns for SA investors, says PSG Asset Management.

The asset manager, which has  more than R47bn in assets under management, says the key is to look beyond blue chip stocks because there is myriad of “above-average” companies that are trading roughly at 55% discount of their true value.

“Where there’s fear, you find the best prices, you find cheap assets,” said Tyrone Green, manager of PSG’s diversified income fund.

PSG’s optimism about  SA bonds and equities comes at a time when the JSE is down 12.37% year-to-date and has not delivered inflation-beating returns in five years. A number of asset managers are increasing their offshore allocation in search of better returns.

Statistics from the Association for Savings and Investments in SA (Asisa) show that total industry flows — excluding funds of funds and money market funds — have shrunk from quarterly highs of around R50bn to R60bn five years ago to R32bn in the second quarter of 2018. SA’s low equity multi-asset funds in particular, have recorded negative net flows since early 2017.  

Green said even though SA is taking a beating on all fronts — the technical recession, weak exchange rate and business confidence  at 40-year lows — the discounted share prices of companies offer attractive opportunities. Likewise SA bond yields, which are at heights not seen since the 2008 global economic crisis, also offer higher real returns. 

“It’s these times that give us opportunities. There’s a lot of fear that has already been priced in,” said Green.

With a 20-year government bond yield now at 10.5%, PSG said  they were providing around a 5% return above inflation. The asset manager now holds 46.4% in SA bonds on its fixed income fund portfolio, of which 14.8% is in government bonds.

“We can now buy inflation-linked bonds at a 3% real yield. The last time we could do that was in 2008,” said Green.