We often think that we are far removed from the US-China trade standoff. Not at all! The Chinese economy is already experiencing a growth slowdown as a result of attempts to reign in shadow banking and off-budget local government investment. Adding more risk to this economy, through failed trade negotiations with the US, would be detrimental for commodity prices, and subsequently the growth prospects for many emerging market economies. Concerns about a slowdown in Chinese growth could trigger a sell-off in global financial markets, as seen in 2015. Back home, it is widely perceived that specific election outcomes may be damaging for domestic markets. So, what do we do when faced with such problems?
Firstly, our quantitative and fundamental research techniques (‘quantamental’) allow us to examine the market from multiple perspectives. In November last year, our analysis of both historical sentiment and fundamental macro factors showed that investor risk appetite was expected to increase over the coming 6 months. Subsequently, investors witnessed a minor rebound in financial market returns for January 2019. Our multi-asset composite benchmark was up 2% during the month. Domestic property was the best performing asset class delivering a 9% total return, with domestic equities and bonds lagging behind with returns of 3%. We are pleased to note that since inception, both the Lima Mbeu SA Equity and Multi-Asset Funds have outperformed their benchmarks.
Secondly, we believe that risk-controlled investing is the best way to grow wealth consistently. Diversification of risk is crucial, otherwise investing becomes no different from tossing a coin. Consider for example the retail sector which released a set of disappointing trading updates recently. This was caused by fuel and VAT increases that were observed in the first half of 2018. These increases led to lower growth in household disposable income and subsequently, a weak trading environment over the festive season. Our portfolios were able to withstand the deterioration of share prices within this sector. Although we had a positive view on Mr Price, we were negative on Shoprite, which meant that we were relatively un-affected by the sector’s issues, because we always seek to balance risks when making investment decisions.
Lastly, we believe in retaining a focus on the positive. Fear may often drive investors into placing their money under a mattress, but this may get in the way of wise behaviour. Inflation expectations have been revised lower on the back of the recent yet significant oil price decrease. As a result, monetary policy authorities across the globe have begun to adopt a more cautious stance in response to slower economic growth forecasts. We think that accommodative monetary policy may provide a buffer for investment returns despite the substantial uncertainty around trade policy, Brexit, and Chinese economic growth. Despite these risks, we will continue to manage the portfolios in a risk-controlled manner to ensure that we deliver on our investment objectives.
Lima Mbeu Investment Managers (Pty) Ltd is an authorised financial services provider in terms of section 8 of the Financial Advisory and Intermediary Act, 2002, FSP number 49018, Registration No 2017/399814/07. This document is for information purposes only. Past performance is not indicative of future performance. The information contained herein is derived from sources which are believed to be reliable. Any opinion expressed herein is based on the presenter’s current analysis and is subject to change. This presentation does not constitute an offer to sell or a solicitation to buy any security. Lima Mbeu has a conflict of interest policy which outlines how conflicts of interest are managed. This policy, as well as additional information about Lima Mbeu’s products, is readily available upon request or on our website: www.limambeu.co.za
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