Our investment committee meeting focused internationally on the numerous bearish signals, the energy crisis and stagflation. Locally, we discussed the global risk-off environment and our rationale for increasing our risk score on South African assets. Jacques de Kock provides a summary of this week’s investment meeting below:



In terms of our short-term technical analysis, we are seeing mostly bearish signals. Barring continued Dollar strength and a bullish Chinese Government Bond market, it’s only Brent Crude prices that are showing bullish tendencies. The high oil price combined with a weak Rand is definitely not great for the coming travel-filled festive season.

The main conversation this week centered around the dreaded word that dare not be spoken in investment circles… “stagflation”. Although there are many factors, such as oil, gas and energy prices, that contribute to the stagflation argument, we feel that most factors are transitory in nature. From last week’s discussion, we continue to hold the view that the situation is not binary and although we will probably see higher inflation in the near future, most factors should be transitory through time.

Global supply chains remain stressed and continue to hamper global growth and influence commodity prices. This leads us to our second important topic for the week: energy prices and constraints. OPEC+ stuck to its plan of raising output in November, but this still leaves the oil market heavily in deficit. A cold northern hemisphere winter could push the Brent Crude price past $90 per barrel. This leaves Europe in a compromised situation, with a lot of their energy supply coming from wind and solar generation, and oil and gas prices on a steady rise, it could turn into a “Game of Thrones”-esque scenario as “Winter is coming” …

With all this being said, Armin Diem gave a nice piece of wisdom to counter some of the price movement pessimism:

“It’s an old saying, but it remains true: ‘The best cure for high prices is high prices’. These high prices should bring in new supply, the only question is how long it’s going to take to come into the market.”

This again plays into our conviction that most of these inflationary issues are short-term problems and should resolve itself over time. With pent-up savings slowly filtering into the economy as restrictions and bans get lifted, we should see the effect thereof also come through in supply and productivity increases.


South Africa

Although we are experiencing a global “risk-off” market triggering a weaker Rand, we are seeing some encouraging signs from our local short-term technical analysis. We see some concerning figures as government bond yields are likely to reach new 12-month highs, but overall, the outlook is more positive.

All major indices seem to have turned the corner into a bullish nature, as did Naspers and Tencent. We are also seeing a resurgence in PGM prices as news came in of the semi-conductor shortage being resolved sooner than expected. Resources companies also seem to be in a bit of a sweet spot as demand and prices slowly ramp up. Financials are looking attractive with renewed investor sentiment, a possible increase in interest rates on the cards and the fact that they are coming off a very low (dare I say “cheap”) base.

It is for these reasons that we as a team increased the risk score on South African assets from 4.5 to 5, to benefit from these opportunities for our clients. We are also looking forward to welcoming back our friends from the UK and Europe to our beautiful country after our removal from their travel “red-list”.


Risk Score





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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