Although the latest political events trigger serious concerns about the local economic outlook, our portfolios are well diversified and well positioned for macro uncertainty.
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South African markets
The markets in review
We have had another déjà vu moment similar to December 2015 – our dear President Jacob Zuma has fired a very competent Finance Minister Pravin Gordhan and replaced him with an inexperienced finance minister, Malusi Gigaba. The market’s reaction to these situations tends to be fairly swift. Like a company a country has a price, and the currency is the price of the country. If it is badly managed or there is poor corporate governance, you would expect the market to punish the currency. That is precisely what has happened once again. In a similar vein and in this case very swiftly, S&P has downgraded us to junk status.
Up until this particular event that we recently experienced with the firing of the finance minister, the market has been fairly stable for the quarter. The South African portfolio is up approximately 2%. The small caps contributed to this performance and have been a decent differentiator relative to our peers. We would like to highlight two stocks: Hudaco, which was up just over 30% for the quarter after reporting a very good result with a positive outlook statement, and Altron, which through the continued restructuring process was up over 20% for the quarter.
We believe the recovery that we are seeing in the value cycle is fairly enduring and our clients undoubtedly will benefit from that over time. Our portfolio is very well diversified and we have exposure to a number of attractively valued domestic stocks. That is balanced by exposure to a number of rand hedges that are starting to look very attractive from a long-term perspective. If we look at the value metrics in the portfolio, the rand hedges are also very attractive relative to the overall market. We believe that this bodes well for our clients, certainly over the longer term.