In our March market commentary, we argued that the sharp intra-month rise in market yields had gone too far. Although the investment theme deteriorated in a significant way, it appeared that the market, at that point, had discounted a lot of the negative news flow. This view turned out to be correct, not just for April, but also for the month of May. During May, the majority of the RSA Government nominal fixed-rate and inflation-linked bonds ended the month at lower yields. In the nominal bond market, and in contrast to April when short-dated bond yields declined sharply and led to bullish yield curve steepening, the decline in yields was more evenly spread across the curve during May. In fact, yields at the short end of the yield curve pulled back from their intra-month low levels in response to a smaller than expected repo rate reduction of 50 basis points (bps) by the South African Reserve Bank (SARB). More specifically, nominal fixed rate bonds in the 7 to 12-year maturity band of the All Bond Index (ALBI) rendered a total return of 13.04%. This was well above the total ALBI return of 9.56% and a long way away from cash and inflation-linked bonds.
Since the outbreak of Covid-19 asset classes have tumbled globally. Modern portfolio theory always dictates that a well-diversified portfolio should have a mix of asset classes that diversify the risk / return profile over time. However, in periods of market shocks and fast-moving markets on the downside we see much more auto correlation between asset classes. That is, they all behave similarly in varying degrees which, in the short-term, confounds the diversification principle.
The local and global economic outlook is bleak, yet the same may not be true for markets. Investment firm RisCura recently hosted a webinar with leading investment specialists in order to get their views on Covid-19 and its impact on markets, the economy and society.
Tighter yields and strong competition in traditional markets have prompted European institutional investors to slow down in deploying their capital, despite having accumulated record levels of investable capital in recent years.
The Moody’s downgrade of South Africa’s credit rating should have happened long ago. We’ve known for a long time that our fiscal metrics have been unsustainable, so despite the coronavirus, this is unsurprising.
Sub-Saharan Africa is the only region in the world where there are more women who become entrepreneurs than men. Despite this, women-owned small businesses find it much tougher to secure financing and investment than their male counterparts.
Africa houses a plethora of economic blocks, legal codes and political systems. Each country and commodity have their own complexities to understand and overcome.
The general slowdown in equity markets was largely driven by a series of macroeconomic factors including an equity capital market (ECM) deceleration in global markets, according to PwC
African equities in general have not been a success story in the last ten years, at least not when compared to other regions. The MSCI US and the MSCI Developed World index rose 232% and 159% respectively in the last ten years, while the MSCI South Africa and MSCI EFM Africa ex. South Africa only gained 33% and 23% respectively in USD terms. Did African equities lag because of volatile politics, falling commodity prices, currency problems and/or economic mismanagement? Not really. Of course, such factors have a negative impact on earnings and currencies, but corporate earnings growth has been quite similar in Africa versus the rest of the world. The big gap in equity returns is almost entirely caused by an expansion of valuation differences.
After enduring a trying decade under the mismanagement and malfeasance of Jacob Zuma, South Africa enters the new year in a better place than 2019, economically and politically. Under President Cyril Ramaphosa, South Africa has much work to do to recover the “lost decade”, but the country and economy are finding some footing and making progress – even if limited at most.
As Africa moves into 2020, great excitement will remain over the continent’s emerging opportunities for investment and trade. For example, Mozambique will attract over $100bn in fresh capital over the next few years to develop its massive natural gas resources. Following recent African investment summits in Russia and Japan, both the UK and France will hold high profile events early next year to expand their commercial relations across Africa’s 54 countries.
Investment performance has always been shadowed by ESG (environmental, social and governance) factors. In line with investment theory, protecting the downside is more important to portfolio returns than the outperformance on a few glory days. ESG may not guarantee happy returns, but it will narrow the opportunity for nasty things popping up in the portfolio and open new doors faster, writes Graham Sinclair, Principal at SinCo - Sustainable Investment Consulting LLC
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