This week’s meeting focused on the situation regarding Russia and how the various scenarios would play out in markets. As we stand today (Thursday 24th February) Russia has now invaded Ukraine. We are comfortable with the current positioning of our portfolios, including the positioning of the managers within our strategies, against this setting but will remain vigilant over the next week as we monitor the situation and take the call to either go more conservative or to take advantage of possible buying opportunities. With all the tension in the markets the only certainty is volatility – and volatility does create opportunity. Jacques de Kock provides a full summary of the meeting below:



Gerry’s technical analysis showed the majority of equity indices continuing the bearish trend. It’s seemingly only the FTSE 100, Shanghai and EM Value indices that are showing some strength. Currencies is a mixed bag of strengths and weaknesses. Gold is looking strong on a proper bull run, indicative of a risk-off market and the impact of the geopolitical tensions created by Russia and Putin (more on this below).

We continue to regard the S&P500 as overvalued, even after the recent pull-back. The graph below illustrates to what extent the global equity index has underperformed since the start of the year and we foresee that the trend could continue for a little while.

Source: FE Analytics

31/12/2021 – 18/02/2022


The core of our discussions this week centered around inflation and the factors that would play a role in either reducing or increasing its impact on the global economy. It is clear to see that the demand pull and supply shortages are having a major effect on the US market and similarly in Europe. The problem for the US is that they are also experiencing some wage pressures from employees that prefer to stay at home and enjoy their “stimulus checks” rather than going back to work. The problem with this scenario is that these people are aware of the abundance of jobs available in the market and, on returning to work, are asking for higher wages. This could have a massive impact on future inflation figures out of the US, even if the supply chain problems get sorted in the near future.


South Africa

Similar to the Chinese story, South Africa seems to be uncorrelated with the rest of the world. When looking at technicals, the ALSI is still above all moving averages and continuing to trend. At the time of our meeting, we did however see some weakness coming from Naspers and Prosus and the Top 40 index pulling back slightly. This is a continuation of the fluid position in Ukraine but more importantly the news out of the US.

The United States Trade Representative (USTR) recently put out its “notorious markets list”. This list is created to redmark online and physical markets that engage in trademark counterfeiting or copyright piracy around the world. This list included some big names including IndiaMart, Alibaba Group Holding and (most importantly in our context) Tencent Holdings. The news was not welcomed in the market and Naspers and Prosus suffered pullbacks in their share price of more than 4% on the day (at time of the meeting).

The Rand is also showing considerable strength in these trying times with only the Brazilian Real being able to outmuscle the South African currency. The ZAR strength is going to be tested today after the SA Budget speech and how the market interprets its effectiveness.

Effective this month, Statistics South Africa rebased and reweighted the inflation basket, an exercise conducted every five years to capture more recent and relevant consumer spending patterns. This saw consumer price inflation (CPI) slowing to 5.7% yoy, from 5.9% in January, in line with market expectations. The four big categories continued to dominate. The transport category remained the key contributor, up by a softer 14.5% (from 16.8%), adding 1.9 ppts to the total. The “housing and utilities” and “food and non-alcoholic beverages” categories also made notable contributions of 1.1 ppts and 1.0 ppt, respectively, to the headline figure.



Within our funds we have reduced the risk score from 5 to 4.5 during 2022 – with our IP funds now positioned between risk score 4 and 4.5 as we reduced our international equity exposure and increased our exposure to commodities – this, however, was not in anticipation of a Russia invasion. We have added to commodity exposure due to US and global inflation risks which will serve as a short term hedge against current market volatility.

Within our model portfolios we are more or less at risk score 4.5 (as our managers also manage their exposure). For example, where we have exposure to Ninety One Managed, the fund currently has a large overweight in energy stocks and global cash exposure. Where we have Rezco exposure in models, their current positioning will also assist to minimise volatility in the short term.

With all the tension in the markets, the only certainty is volatility – and volatility does create opportunity. It’s for this reason, we stay on our 4.5 risk score for both local and global assets but may move to a more cautious stance. At present our funds are trading at between 4 and 4.5 risk score with the option to move to risk 4 if the situation worsens. We will be extra vigilant over the next week as we monitor the situation in the Ukraine, both for going more conservative if needs be, but also to take advantage of possible buying opportunities.

We do remind investors that conflict situations have often created opportunities thereafter. One year after the 1941 bombing of Pearl Harbour the S&P500 gained 15% and one year after the US invasion in Iraq in 2003 the market was up 35%. We will continue to monitor the current situation and report our actions.


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. MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider Licence No. 28160, regulated by the Financial Sector Conduct Authority (FSCA) – Registration No. 2005/032750/07.MitonOptimal Portfolio Management (Pty) Limited is an Authorised Financial Services Provider Licence No. 734, regulated by the FSCA – Registration No. 2000/000717/07.

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