Our investment committee meeting discussion focused on the volatility and uncertainty in both international and local markets. Internationally we discussed the bearish technicals, the elevated inflation trend and Evergrande fiasco. Locally, our discussion focused on the Rand, economic opportunities in being taken off the UK travel red-list as well as the case for PGM companies. Jacques de Kock provides a summary of this week’s investment meeting below:



Starting off with our technical analysis, we are still seeing a risk-off market with bearish technicals through almost all indices. Dollar and Yuan strength continues versus most other currencies as uncertainty and volatility continue to drive a flight to safety.

Global inflation remains elevated with signs of a slowdown in the US, China and Japan. The marginal easing comes because of lower food, medical care, used-car, tobacco and services inflation in August. Due to lowering inflationary pressures and a continued focus on economic stimulation, we expect most developed markets to keep rates low and postpone hikes further into the future. This seems less likely for emerging markets as some countries have already started hiking rates, and South Africa is looking at a hike as early as November 2021. We do, however, think that the inflation debate is not as straight forward as “transitory vs structural”. Shaun McDade gave a summary of our view:

“We’ve got so many moving parts here, it’s over simplistic to suggest that it’s fully structural or fully transitory. The fact of the matter is that a lot of the things that are pushing inflation numbers around are a mixture of both. So, the conclusion from all of this is that, yes, you are going to see higher inflation with a structural element to that. But that doesn’t mean that you are going to have a run-away inflation rate, the truth is probably somewhere in between.”

In the US we discussed the current debt ceiling debate and recent US manufacturing data. Biden is accusing the Republicans of putting the country at risk as the political grandstanding continues. With the Republicans not wanting to offer a bi-partisan solution to raising the debt ceiling and supporting spending programmes, it seems like the Democrats will have to continue without their support. Manufacturing data showed that orders rose by 1.2% month-to-month in August, suggesting that the economic recovery is starting to gather momentum. This bodes even better when considering that this was achieved despite massive supply-side constraints.

In China, the Evergrande fiasco continues and should remain a key discussion point for quite a while. With Evergrande and (smaller rival company) Fantasia both missing bond payments, it is clear that this is not just an Evergrande issue, but that the entire Chinese property sector is extremely vulnerable.

“Years of cheap money, an unsustainable credit cycle, and the accumulation of debt has boosted Chinese growth but left the property sector vulnerable, now that it cannot rely on massive economic growth rates to soak up supply.”

– ETM Analytics


South Africa

Continuing from last week, it’s only the FINI, SAPY and the NewFunds Value ETF that are providing some light in the bearish technical tunnel. The most worrying factor (from a technical and fundamental perspective) is the direction of the R186 and R2030 yield curve. We are keeping a close eye on the yield breaking through March 2021 highs, which could signal immense pressure in our bond market.

As stated in the international section, the risk-off forex environment is playing through into Rand weakness versus all other currencies. We feel that the Rand is probably close to fair value at the moment, but could range between 14.30 and 15.40 to the Dollar in the medium term. We are, however, cognizant that a break through the 15.40 resistance level could cause increased weakness for the Rand.

There is some good news coming out of the leisure industry in that we should see South Africa being lifted from the UK travel red-list. This not only bodes well for the tourism industry, but also for the property sector and the economy in general. As we stated in previous weeks, this is one of the major catalysts that needs to play out for a South African growth story, together with renewed foreign investment into our bond and equity markets. Unfortunately, the latter seems rather muted still, with foreigners still being net sellers of our bonds and equities.

On the back of discussions around global supply chain constraints, we also looked at the case for PGM companies in South Africa. Our opinion is that, with vaccination rates in key countries (Malaysia, Vietnam, Taiwan, South Korea, China, and Japan) being ramped up considerably and new cases in decline, the risk to semiconductor supply chain constraints is decreasing significantly. This provides for a buy opportunity in the longer term, but with quite a bit of volatility along the way.

This also plays into our economic view. We feel that economic and equity market growth is hinged heavily on our resource sector and the profitability thereof. Roeloff Horne articulated our stance well in saying:

“If the scenario is correct in terms of resource demand going forward, i.e. if resources do well from here, I think we see some further upside in our economy as well as our equity market.”

We also discussed the recent changes to the Capped SWIX Index and the effect on our portfolios. With the cap on counters decreasing from 10% to 5%, exposure to the top 10 counters changed considerably versus the ALSI index. We feel that the current weightings still reflect our view of the world, and we welcome the change to the index.

Basic Materials 22.76%
Consumer Discretionary 7.14%
Consumer Staples 10.93%
Energy 1.04%
Financials 26.01%
Health Care 3.48%
Industrials 4.10%
Real Estate 4.86%
Technology 12.13%
Telecommunications 7.55%


Basic Materials 32.09%
Consumer Discretionary 11.19%
Consumer Staples 7.10%
Energy 0.67%
Financials 20.60%
Health Care 1.72%
Industrials 4.06%
Real Estate 1.53%
Technology 14.63%
Telecommunications 6.39%

Source: Nedbank Index Report & MitonOptimal


With all the volatility and uncertainty in the global and local markets, we are still cautious on risk assets staying with our 4.5 risk rating for both international and local markets. There are a few areas that we are keeping a keen eye on that could change our views and hopefully move back to into neutral weight on risk assets.


Risk Score

LOCAL: 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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