MEETING PURPOSE
Our investment team aim to meet every week to discuss the macro environment and how this could impact our current and future portfolio construction.
KEY TAKEAWAYS
- The “Great Debasement Trade” Drives Markets: Central bank rate cuts (Fed) and debt monetisation are driving asset prices higher, creating an “everything bull market” where currencies depreciate against each other.
- Potential SA Policy Divergence: SARB is unlikely to follow the Fed’s aggressive rate cuts, potentially making SA assets less attractive than international counterparts.
- New Neutral Strategic Asset Allocation (SAA) Model Approved: A variety of small asset allocation changes were approved (not all implemented at present) as part of the 12-24 month strategic asset allocation plan.
- Current Barbell Strategy Confirmed: The portfolio’s barbell strategy (combining a large weight in technology and basic materials relative to other sectors) will continue, using the recent commodity pullback as a buying opportunity.
TOPICS
The “Great Debasement Trade”
Core Theme: Central bank policies (rate cuts, debt monetisation) are inflating asset prices.
Commodity Rotation:
- Precious Metals (Gold, PGMs): Corrected sharply after a strong run.
- Gold: Pulled back from ~$4,000 to ~$3,900. Key support levels are ~$3,800-3850 and a strong base at ~$3,500.
- Platinum: Pullback is holding above its bullish break level.
- Industrial Metals (Copper): Flirting with a bullish break.
- Energy (Brent): Holding up. Anecdotal evidence suggests cheap Russian diesel is entering SA, potentially lowering inflation.
Equities
- Global: An “everything bull market” is in full effect, with US tech leading.
- SA: The RESI (Resources index) is down ~20% (bear market territory), but bounced back with buyers getting active on Tuesday. The JSE Industrials and Financials remain strong.
Portfolio Strategy
Flagship Fund ( Active Beta):
- Barbell Strategy: Overweight Tech (US/China) and Basic Materials (SA/Global).
- Current Positioning: Risk-on (score of 6.25 vs. neutral), driven by equity overweights.
New Strategic Asset Allocation (SAA) | Key Shifts:
- SA Cash & Bonds: More cash, less long-duration bonds.
- Global Assets: Less cash, bonds, and property.
- Global Equity: Increased allocation, especially for higher-growth portfolios.
- Commodities: New allocation of 0-5% in growth portfolios.
Protected Notes discussion:
- Considering protected notes for offshore equity exposure to manage risk.
- Trade-off: Protection (e.g. first 10% loss) vs. a capped upside (e.g., 8-9%) and locked-in liquidity.
SA’s Greylisting Removal
- Impact: Largely priced in. The market’s positive reaction was muted, as the news was widely anticipated.
- Significance: SA is “back in the race” for foreign investment, removing an administrative drag and boosting confidence.
- Long term view: The real benefit will come from sustained implementation of reforms, not the announcement itself.
Emerging Markets Opportunity
Rationale: EM equities are cheaper and offer diversification from DM cyclical risk.
SA vs. EM Analysis:
- Correlation: SA equities are highly correlated with the EM index (~83%).
- Performance: In Rand terms, SA equities have historically shown higher beta on the upside and lower downside capture than EM.
- Currency Effect: The Rand acts as a shock absorber. In Dollar terms, SA equities would likely have higher volatility than EM.
Next Steps
Roeloff: Add to Basic Materials on weakness (within committee/client mandates).
Team:
- Finalise and implement the new SAA – incorporating weekly team views.
- Evaluate offshore protected notes for risk management.
- Assess adding to EM exposure (e.g., LATAM indices) to increase diversification.
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.3