The multi-year outperformance of growth over value stocks is well documented and has been amplified by the Covid-19 pandemic. In fact, cheap (value) stocks have underperformed by the biggest margin seen in over a century. Hence, it should not come as a surprise to find that the investing public has given up on value stocks and value funds. The effect of this capitulation out of cheap and unloved stocks has been profound. It has given rise to some of the widest discrepancies in relative valuations and some of the highest levels of crowding in growth (particularly technology) stocks on record.
I was invited as one of the panelists to attend a webinar about healthcare investments in Africa. The main question there was how the ongoing pandemic has reshaped the healthcare investment landscape. Some things may have changed during this very exceptional year but in my opinion, most things have not. We are a long-term impact investor, and our mandate is to help companies grow. This fact hasn’t changed. If anything, COVID-19 has made us all aware of how important it is to have sufficient reliable healthcare resources. Many of our target countries have public healthcare systems that are currently not able to meet the needs of the growing populations.
Despite the uncertainty about the domestic and global economy, financial markets have staged a rapid recovery since the COVID-19 pandemic triggered a severe sell-off in February and March this year. The fiscal and monetary stimulus of economies contributed to the improved sentiment in markets since April, but the question is to what extent this can be sustained? We are also faced with a variety of problems in South Africa that will not disappear overnight.
The impact of COVID-19 on global economies has triggered unprecedented central bank responses. Since the virus made its debut in December 2019, the US Federal Reserve Bank (Fed) has lowered the targeted fund rate and kept it between a range of 0% to 0.25%. This marks the lowest level since the 2008 global financial crisis. Locally interest rates are at 50-year lows after the South African Reserve Bank (SARB) trimmed interest rates by 3% this year.
Due to the impact of COVID-19 on the South Africa economy and particularly the poor socio-economic situation of many South Africans, the value of Impact Investing has been amplified and investors realise the integral role it plays as part of their investment portfolio.
Despite the global COVID-19 pandemic, technology and construction opportunities in Africa remain. Urbanisation and economic diversification continue to fuel the urgent demand for improved physical infrastructure. This is reflected by the development of major projects, such as the vast hydropower projects underway at Mambilla in Nigeria and Caculo Cabaça in Angola.
The Johannesburg Stock Exchange has proved itself remarkably resilient during the global COVID-19 crisis, according to Leila Fourie, Group CEO of the JSE, so much so that the JSE All Share Index is not just in positive territory, but on a like-for-like basis, it is producing better returns than it did at this time last year despite enduring some of the most volatile trading times in recent history.
The most recent figures released by the Association for Savings and Investments South Africa (ASISA) show a historic influx of investment into local unit trusts over the last quarter. In fact, according to ASISA, this is the highest net quarterly inflow on record, at R88bn. Of this amount, around R44bn was invested by individual investors, and a big portion of that was brand new money that had not been invested before.
Headwinds caused by the COVID-19 pandemic have made investors reconsider the traditional risk-return dynamic of asset classes. They realised that risks can be found anywhere in the investment world. Even in developed markets - considered a safe bet in the previous cycle. But what plausible investment opportunities could emerging markets offer in the next few years?
With the various threats to the Mauritius model caused by negative FATF and OECD listings, the question of “if not Mauritius, then where?” has been raised by many investors and managers in Africa. It is in this context that at the end of 2019, the World Bank and the CREPMF published proposed rules to create a legal framework for PE/VC funds and asset managers in the West African Economic Monetary Union region (WAEMU). WAEMU covers eight countries of West Africa, including the fast growing economies of Cote d’Ivoire and Senegal.
A Group of 30 report, published late last year, estimates that the world’s top economies will face a pensions shortfall of just over $5trn by 2028 and $15.8trn by 2050. It is anticipated that this shortfall will be even greater given the impact of the COVID-19 pandemic once this report is updated. The likelihood is that the pandemic has brought the crunch-point forward for many retirees.
The COVID-19 pandemic struck Africa later than other regions of the world, but its effect on African economies should not be understated. The World Bank has predicted that the continent will face its worst recession in 25 years, write Kwadwo Sarkodie (pictured), Partner, Ed Bentsi-Enchill, Associate, and Thomas Ajose, Associate, Mayer Brown.
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