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The 10-Year Outlook on Markets is … Positive

Jan 31, 2023 | General, Market & The Economy | 2 comments

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Many of us will agree that it is better to buy low and sell high. This is one of the basic premises of investing and will stand an investor in good stead. However, to follow this sage advice often feels daunting. Especially now, buying at a time when markets are down, with lots of uncertainty, gloomy forecasts, talks of recession and job losses. Yet the market is always forward-looking and it has been proven, over and over again, that it is at times like this, that it could be the very best time to invest!

The Investment Horizon 

It is near impossible to forecast with any justified accuracy what is going to happen in the next 12-18 months in the markets. Forecasters will give us an idea of what they are predicting however, no-one can be sure that short term news flows won’t impact their forecasts.

There is so much at play that makes the market move in the short to medium term. A Federal Reserve announcement on interest rate changes, or jobs figures in the US and inflation numbers can all have an impact on the market in the short term.

If however your eyes are on the distant horizon and you are a long-term investor (10 years plus), the likelihood of you achieving your investment goal is far more certain because you have the luxury of being able to ride out the short term noise and harness the power of compounding.

What are investment managers saying currently?

In January 2023, we were very surprised to hear asset managers and research houses tell us how excited they were with current asset price valuations. The market is offering great value if you look at it through the lenses of a 10-year investor. It does not seem to make sense to most of us who are currently living in a very volatile world, dealing with high inflation at the shops and petrol pumps. We are coping with crippling load shedding. Hearing daily of redundancies globally in tech companies, war, and political uncertainty.

The news is constantly referring to the R word (impending recessions) locally and especially abroad. The R word is terrifying for everyone (investors, central bankers, politicians, business and employees). The problem with anticipating a recession is that we never know if it is going to be deep or shallow, short or long. Not even central bankers with all the economists in the world have any idea how to predict any of these with any degree of certainty.

So how do we move forward in these uncertain times?

Firstly, we know from history, recessions usually last 12 -18 months. If we have a 10-year outlook, this means that just about all the issues we have been through will have passed and recovered at the end of this period.

Secondly, they are looking at share prices at the end of December 2022 that have endured a major correction in the previous 12 months as markets anticipated an impending recession. This means that if investors buy these assets now, they are getting them at a good price and they know with a great deal of certainty that most of these well-run companies will pay strong dividends and are likely to grow over the next 10 years. It is all about having more certainty of an outcome if we have a longer time horizon.

We came across a table from Fundhouse that we found surprising. If we go back and look at where asset prices are relative to their 10-year return expectation, research shows at current valuations, what long-term investors can expect to get in rand terms in ten years’ time.  These returns are annualised, assuming an inflation rate of six percent:

Asset class in Rands expectations Normal 10 year average Future 10 year
SA Equity 13.4% 16.1%
US Equity 13.8% 10.4%
World Equity (excl US) 12.9% 15.0%

The interesting point to take from this is that some large US equities are still priced stubbornly high, and as a result any investor would have a surprisingly lower expectation of returns for the next 10 years. (If you buy high, expect lower returns.) PE earnings are as high as 26 on US blue chip stocks and should be sitting at 16. Interestingly, this is only in the US, all other world markets are looking inexpensive and well-priced.

The other surprise is that despite South Africa’s load shedding and political uncertainty, its shares are extremely well priced, and this is why the prediction for market returns over the next ten years is positive. They believe the current mess we find ourselves in, is considered and priced in. According to Karl Lienberger (Coronation CIO), “There are many good SA companies that if you buy them now, the dividend alone would pay 50% of your capital back in five years, assuming a bad investment case and the share price stays the same”.  Not bad for a 10-year investment.

We have a period of uncertainty to get through – we can’t know 100% but the likelihood of a recession, in the short-term, is high. However, based on observations, insights and activities in the market, the darkness will subside and the sun will come out again.




  1. Andre Du Toit

    Very POSITIVE news. Thank you xxx

  2. CJ Moll



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