April 2025: Volatility Equals Opportunity

Talking Points:

• Macro Developments Currently Driving Sentiment/Outlooks

• What We Know

• Valuation

• Volatility Equals Opportunity

• Where Is The Bottom? / Timing

  
  

Macro Developments Currently Driving Sentiment/Outlooks | This note runs the risk of communicating items you may already be familiar with. For example, you will be aware that global financial markets are under pressure. You will be aware that the trade war via tariffs are one of, if not the main driver of the decline in risk assets. You will also be aware that volatility is high and that most risk assets have sold off. The aforementioned, are some of the negative factors that are at play.

What We Know | As analysts and traders, we will never have all of the information at hand in order to make a decision. In some cases, we will have 55% of the information while in other case, will have 78% of the information etc. What we do know is that lower prices are presenting us with opportunities to (1) be active and take advantage of volatility and both the buy (long) and sell (short) side and (2) Take advantage of lower prices to build medium to long term portfolios (both U.S and global). What we also recognize is that at an index level, the All Share and Top 40 indices are slightly off their long term highs, but underneath the surface there has been some have been businesses that have seen their share prices decline significantly over several weeks and months.

Valuation | In the short term, valuation isn't a very good timing tool however, over the long term, it does add value and can help traders and investors accumulate pieces of businesses that have the ability to 're-rate' over several months and years. While it is a crude way of measuring value, it does help us identify potentially cheap stocks (to buy) or expensive ones (to sell). A quick screen will help to uncover potential opportunities. Take Absa, for example. At Friday's close the share traded on a price-to-earnings ratio of 6x, with a dividend yield of 8%. It also sported a price-to-book value of 0.82. SA industrial group Bidvest's price-to-book ratio is at 1.98x, which is the lowest since October 2020. Old Mutual trades on 6 times it's trailing earnings, with a dividend yield of 7.6%. Cyclical share Sappi trades on a 4 price-to-earnings ratio and a 7.2% dividend yield. This is a non-comprehensive list and merely just examples of shares leaning toward fundamental value.

Volatility Equals Opportunity | The spike in volatility is presenting traders and long term investors with opportunities to smartly allocate capital to take advantage of falling prices.

Where is The Bottom? / Timing The Market | With prices moving at a rapid pace, levels have and are being breached with new support and resistance zone being tested. In some case, support is taken out and reclaimed, creating an opportunity for the fast-fingered trader to generate cash. I'll be the first to admit that I don't know where the exact bottom is, however, I'll be monitoring real-time developments in price action in an attempt to ascertain whether the momentum is slowing down or accelerating as well as what the price action is signaling.

Bottom Line | The next few days and weeks may present an opportunity gradually phase in positions i.e. rand or dollar-cost average into a medium to long term portfolio. The current sell-off represents some businesses going 'on sale', with prices that may offer value for a 'limited period only'. Others might have further to fall, which will offer opportunities at a later stage.

Note: With prices moving fast, it might be that not all ideas/opportunity will be communicated in written format via the Unum Capital website. To avoid missing opportunities, open an account and connect directly with our traders on the desk. To get started, email tradingdesk@unum.co.za

Lester Davids

Analyst: Unum Capital