Our Investment Committee meeting discussion focused internationally on the dollar, the commodity boom and US stimulus. Locally, we took a look at the Rand weakness, the effects of the reinstated grant and the market environment post the recent unrest. Jacques de Kock provides a summary below:

International

For the first time in a while, we are seeing some short term Dollar weakness – with the Fed remaining dovish and reiterating their intention to be reactive in decisions regarding interest rates putting some pressure on the Dollar.

Regarding the commodity boom, there were some clear winners and losers over the last couple of months. With oil producing nations by far the greatest beneficiaries, it was the net importers that felt the full brunt. This explains a great deal of the market and currency strength that we have seen in the last couple of months.

We also had a decent discussion regarding Biden’s enormous $1 trillion infrastructure package. Specifying the long-term economic benefits, the Democratic Senator Joe Manchin said that they expect the Bill to pass before the end of the week and would be going for five to ten years. It seems as though there is enough Republican support for the Bill to pass, but it’s not a sure thing yet. We also discussed the various beneficiaries of this gigantic infrastructure spend and also ventured into how much of this is already priced in. We had varying views but agreed that most of the effects should be priced in already. That said, we are keeping a keen eye on US GDP growth and inflationary pressures going forward.

South Africa

On the local side, we are seeing the Rand trade almost flat with a little bit of weakness. This is a rather comforting fact after the violence we experienced in our country only a few days ago. Although much of the “flatness” can be attributed to a spot of Dollar weakness, we also had another record month of trade surplus that bolstered the Rand.

We discussed the effects of recent events on the property sector and local REITs in particular. Although the carnage left behind by the looting and burning of property was on a scale not seen in a very long time, it was positive to hear that most of the REITs that were affected had sufficient insurance in place (both on the property and also in business interruption). This meant that the damage to LTV ratios and profitability was not as severe as originally thought.

The recent announcement of a R350 per person “grant” was also a hot topic this week. With the total cost of this stimulus in the region of R23 billion, our focus was on the effects (negative and positive) on the Rand and the economy in general. It is clear that such a large sum of money will have a detrimental effect on an already cash strapped SA government, but the long-term effects are still unknown. We do, however, agree that most (if not all) of that money should be going back into the economy via the purchases of consumer goods and essentials. This should bode well for some SA Inc counters, and consumer staples and financials in particular.

 

Risk Score

LOCAL: 4.5

 

GLOBAL: 4.5

 

Learn more about our Risk Score

At MitonOptimal we utilise our proprietary optimiser to calculate a SA and Global risk rating. This is a rating out of 10, with a rating of 5 reflecting our neutral risk position, 0 being a totally risk-off stance and 10 totally risk-on. We review and set the tactical risk rating on a weekly basis at our global investment meeting, and the outcome of this review may result in a tactical tilt to our portfolios. In extreme circumstances we might review our strategic risk score. For example: when we declare a risk score of 4, it means we are cautious relative to our long term strategic asset allocation plan – alternatively, when we declare a risk score of 6 we are more aggressively positioned relative to our long term strategic asset allocation plan.

 

Jacques de Kock

Quantitative Analyst & Portfolio Manager

 

 

The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.

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