Improved Sentiment

Market overview

The outperformance of riskier asset classes during the first quarter of 2019 has been a prominent theme across the world. It is therefore pleasing to note that our SA Equity and Multi-Asset funds have outperformed their benchmarks during the period. Riskier asset classes have benefited from improved sentiment because of:  

  • a move toward more accommodative monetary policies by the major central banks,
  • the on-going truce in the US–China trade dispute, and
  • China’s increase in its fiscal stimulus to offset the negative impact of trade tariffs.

Improved Sentiment

The change in the tone by the major central banks has been an essential contributor to the improvement in financial market sentiment. As a result, bond yields in most major economies have started pricing in lower interest rates – which has contributed to the upward re-valuation of asset prices. Despite these improved investment returns, we think that investors should proceed with caution.

Structural Constraints

We think that the truce on trade policy negotiations is temporary. It is important to remember the context - economic growth in developed economies is expected to weaken over the next two years. This has fuelled an environment of heightened trade protectionism. The simple truth is that sustained economic growth comes from only two things - how many people are working and how productive they are. There is currently little to no improvement in labour productivity within advanced economies, whilst ageing populations are creating a slowly growing labour force. It should come as no surprise that the response of policy-makers has been to try and achieve positive gains through the aggressive restructuring of trade deals. As such, there remains a high probability that the US administration could ignite a trade war with the global auto-sector, leading to further downgrades in economic growth and a sharp reversal in sentiment. What is crucial from here on, is that policy-makers must continue working co-cooperatively if riskier assets are to sustain their superior investment returns for the remainder of the year.

Outlook

Positive momentum could result in the continued out-performance of riskier assets in the short-term. But we think that the risks are still skewed to the downside. Firstly, a no-deal Brexit withdrawal of the UK from the EU cannot be ignored entirely. Secondly, while the improvement in financial markets has been swift, the real economy has yet to see any real gains. There is a risk that weak economic data, indicating a continued global growth slowdown, could lead to a sharp reversal of sentiment. The big positive for investors is that policy-makers have reacted in the right manner to ensure that these downside risks do not materialize - we hope that they continue on this path. Despite the high levels of policy uncertainty that prevail in the current environment, we will manage our portfolios in a risk-controlled manner to ensure that we deliver on our investment objectives.

Ndina Rabali, Teboho Tsotetsi & Bhekinkosi Khuzwayo

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

For more information, contact Ndina Rabali: Email: ndina.rabali@limambeu.co.za
Tel: 010 023 0113; Address:  Fredman Towers, 13 Fredman Drive, Sandton, 2196