SA's largest asset-manager, Investec, has an upbeat assessment of the JSE’s prospects for the next five years, expecting returns on the local bourse to match those of foreign equities during the period.

The prospect of an end to the US-China trade war, the receding chance of the UK crashing out of the EU without a deal, as well as continued global economic growth are reasons emerging-market equities could take the lead in the medium term, Investec Asset Management director Jeremy Gardiner said on Tuesday. 

Speaking at an Investec presentation in Sandton, Gardiner said SA’s domestic problems, such as Eskom’s debt burden, were now seemingly being taken seriously by the government. This was positive for SA, given that many of its emerging market peers had similar, if not worse, continuing domestic political battles, he said.

The end to the US-China trade war, in particular, could be positive for riskier equities, having prompted severe selling pressure during 2018.

“US President Donald Trump needs a deal soon, he has an election in 18 months’ time, and needs the economy growing and the stock market up,” Gardiner said. “It looks like the stars are aligning, finally, for emerging markets.”

The JSE lagged its global peers in 2018, falling 11.37% during the course of the year, compared to the Dow's fall of 2.45%. The MSCI World Equities Index — which tracks 47 markets — fell 10.44%. 

Investec expects the JSE's annualised performance to match those of foreign markets in the next five years, after almost a decade of underperformance.

Investec is targeting a return of 15% per year on local equities over the period, in line with foreign equities, Investec portfolio manager Clyde Rossouw said.

This return would require active management rather than passive investment, and returns on the local bourse would at best average 11% per annum, said Rossouw, should investors just track indices.

Investec had also increased its holdings of local bonds, having seen opportunities due to the hefty risk premium attached to local debt, Rossouw said.