Global inflation seems to have peaked, and this could mean no more interest rate hikes but rather potential rate cuts over the medium term (SA should follow global rate movements). It’s unlikely that interest rates will return to the lows of the previous decade.
The Good
Global inflation seems to have peaked, and this could mean no more interest rate hikes but rather potential rate cuts over the medium term (SA should follow global rate movements). It’s unlikely that interest rates will return to the lows of the previous decade[i]. What we need is a balance of economic growth and inflation with appropriate interest rates – getting that balance right is harder than it looks. Kudos to the South African Reserve Bank (SARB) for their fortitude in managing SA inflation.[ii]
The Better
There is a revolution that has already subtly begun and we are yet to experience its full impact. AI (Artificial Intelligence) will change our lives, and if done right and cautiously, for the better, the last bit however isn’t certain. AI stocks, such as Nvidia have rallied hard and many other players in the market – such as OpenAI (not available to buy as a standalone share) are making waves in people’s lives already – writing their love letters, emails, and business reports in a fraction of the usual time.[iii]
Closer to home, the finance minister has put in place tougher bailout agreements between the government and Eskom, to ensure that the funds are used appropriately.[iv] This sentiment extends to other SOEs who have currently not been granted a bailout. Transnet for example is required to provide progress on its turnaround plan before providing any funding to the enterprise. It’s another small, but very important step in the right direction.[v]
The difficult
The South African economy currently faces many challenges, from high unemployment to poorly performing SOEs (adding Transnet to the list which of course includes ESKOM) and many own goals. It’s a tough place to be, but there are signs of light wherever you look – they may not be in the traditional narrative, but they are there.[vi]
Fund performance
Whilst we are comfortable with the performance of the funds relative to competitors over the longer investment periods, the funds have struggled relative to peers over 1 year and we expect this is because of the lower offshore exposure that our funds have relative to our competitors. We are in the process of finalising a notable change in our portfolio construction, which in part will see a significant increase in offshore exposure and other opportunities. We aim to update our clients on this in the new year.
Source: Morningstar, accessed on 11 December 2023. Past performance is no guarantee of future returns, performance is calculated as NAV to NAV with net dividends reinvested. Peer groups are for illustrative purposes only