At a recent investment committee review, Morningstar outlined their view on the year to date as well as their current portfolio preferences:
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World equity markets: Markets priced in a UK “Remain” vote so there was an initial reaction followed by a corresponding adjustment.
Emerging Markets: Became the beneficiary of “risk-on” trade and capital inflows resulting in emerging markets currency strength and market gains
SA Equity Market: Year to date, JSE AllShare trading in a range between 46 000 and 55 000. More recently even more range-bound between 51 000 and 53 000. Value shares have remained in favour.
SA Bonds: Up over 11% YTD as yields fell from 9.50% to 8.70% due to foreign inflows
Commodities: Strong recovery in commodity prices off low base.
Rand: Gained significant ground against major foreign currencies since the end of June : +11% against the USD. +13% against Sterling and +10% against the Euro.
Foreign Flows: Year to date: R40.5bn into SA Bonds and R19.8bn into equities.
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Morningstar’s portfolio positions:
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Neutral equities: Some opportunities in domestic equities. Expect more short term volatility.
Increased allocation to cash and bonds and neutral allocation to listed property: As rate hiking cycle begins cash is likely to offer better value than bonds.
Remain fully exposed to global assets but beware Rand strength: Long terms benefits of diversification but watch out for short term currency moves.
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Here is a view from Investec’s Jeremy Gardiner:
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Just because South Africa has become relatively peaceful over the past three months and the rand has strengthened from an extremely oversold position, we must not be lulled into a false sense of security. We still have significant challenges to overcome. Pravin Gordhan and his team miraculously avoided one downgrade bullet, but with stalling growth, we’re going to need a Herculean effort from everybody – government, business and labour; in fact South Africa as a whole – to see us clear December’s hurdle, and then maybe, unlike last year, we can enjoy happy holidays.
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