Despite ongoing volatility and low growth, our funds have outperformed the market on the back of a recovery in the value cycle. We maintain a diversified positioning amidst the uncertainty.
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South African markets
Events that affected the markets
There has been a number of factors and events that has impacted the volatility that we’ve seen in the markets over the last quarter. It is likely to continue in the shorter term. One of the first factors – the Anheuser-Busch InBev takeover of SABMiller – has certainly led to some of the strength that we have seen recently in the rand. In addition, the uncertainty in the US regarding the presidential elections that are coming on the 8th of November has also been driving volatility, together with uncertainty around the timing of US interest rate hikes. We do anticipate that we will see another rate hike in December and are likely to see two rate hikes next year. This will continue to drive an element of volatility.
The South African economy has been characterised by uncertainty around GDP growth or the low GDP growth outlook, the relatively weak consumer, and the uncertainty around the credit downgrade. However, we believe that the South African Reserve Bank (SARB) has been well ahead of the curve in terms of interest rate hikes and inflation is likely to peak towards the end of this year. This will provide the SARB with greater scope to consider reducing interest rates. We believe that this will be fairly supportive of the consumer and is also likely to support growth within the South African economy.
How these events and factors affected performance
Our funds have had very strong performance year to date and outperformed the market. This has been no different over the last quarter. The funds have performed due to a number of factors. Firstly, we have seen a recovery in the value cycle and commodity stocks recovered quite sharply. In particular, our holdings in Anglo American and Northam have contributed positively to performance. We’ve also seen a recovery in the banks since the beginning of the year following the ‘Nenegate’ scenario last year as well as performance in some of our small and mid-cap holdings, which has contributed to the outperformance on a year-to-date basis.
We believe that the value cycle has turned and that our clients will continue to benefit from this. Our portfolio is not just positioned for one macro event but is well diversified. We see a lot of opportunity in some South African stocks as well as some of the rand hedges that we believe are attractively valued, such as Capital & Counties (which we bought after Brexit), Anglo American, Northam, Old Mutual and finally Reinet.
Claude van Cuyck