Peter Brooke 00:00
Good day. I'm Peter Brooke, a Portfolio Manager at Old Mutual Investment Group. This is Macro Perspective Number 47 of 2020. And I want to talk about the vaccine impact on market
Last Monday, we had the Pfizer results, and this week we had the Moderna results, both of which are excellent news and give credible hope for a means of fighting this pandemic. Markets moved immediately on the back of this with some huge moves. For instance, month to date, most equity markets are up by more than 10%, and the Rand has strengthened by five and a half percent. It is pairs like this that reinforce the importance of sticking to one's investment plan. Gains often come very quickly, meaning that if you're sitting in cash on the sidelines, you lose out.
From my perspective, I'm happy that absolute returns are recovering. And this is very much in line with our view to spend cash and to buy shares. Perhaps more importantly, this period has marked a sharp rotation between value and growth shares. For instance, in South Africa, financials are up 25% month to date, while Naspers is down 2%.
These moves are allowed by the vaccine because the market can look through the current lockdowns and focus on recovery in 2021. The earnings of many of the bombed-out value shares like banks and energy companies are so low, they can therefore grow faster than the tech companies. Just to explain this is a cyclical view, not a secular one. In other words, the rebound can last a year or two, but doesn't take away from the long-term superior growth from the new economy companies relative to the old economy companies.
At the same time as this growth is starting to shift, the valuation difference between growth and value shares is at an extreme. This means that the rotation that started this month can last for some time, suggesting what worked in the last couple of years won't work in the next year.
As active managers, we need to ensure our clients' money is in the right place. Regular listeners should know we've been buying South African banks with our offshore cash. In addition, Arthur and I have also taken some profits on the Harmony and Naspers shares we bought in the crash, and shifted these to cheaper shares, like Bidvest.
On our offshore exposure, we're very focused on this value versus growth debate and have been increasing the value exposure in Global Macro Equity, our offshore equity fund. Right now, COVID is causing lockdowns in Europe, and is creating enormous pain in the global economy, and here in South Africa. Plus, we still have a lot of time before a vaccine is successfully distributed. But what is important is the market looks forward, and we think that the value style can do a little bit better relative to the growth style in the next year. As a result, we are excited about the way our funds are positioned and are looking forward to the next period. I hope you found this perspective useful. Until next week.