Moving into the Second Half of 2024: Future Prospects
As South Africa navigates the post-election period, there is a collective hope that the newfound stability will lead to sustained economic growth and prosperity. I’ve been in the markets for almost 20 years, and I’m more excited about them now than ever. Valuations are the most attractive they’ve been in 20 years – as are global cash rates and bond yields.
In South Africa, despite all the hard work we know needs to be done, valuations are looking attractive, which has caused the local equity market to react extremely positively. Additionally, the Monetary Policy Committee of the SARB continues to delay interest rate cuts – although the market pricing is for the easing path to start during the second half of this year – which will also bode well and continue to support continued strong performance from fixed-income portfolios.
From a global context, there are major upcoming elections in the US and UK, however, the outcomes of these seem quite predictable, which means the markets are already largely pricing these in, in the near term. What will be more interesting, perhaps, are the impacts of the respective parties’ economic policies over the next five years. We may see more of an extended volatility in interest rates, for example.
We continue to live in a fantastically dollarised world with the US dollar still very much the dominant currency from an allocation as well as a flow perspective. Furthermore, we’ve seen the ‘Magnificent Seven’ continue to surprise almost everyone with their increasing dominance and performance as well as valuations pushed to the extreme. The performance of US equities has been so exceptional that they represent almost two-thirds of the MSCI World Equity Index. However, as allocators of capital, we advocate seeking opportunities around the world to offset risk. The dollar may still represent the vast majority of investable assets, but there are also many opportunities elsewhere.
Looking forward, we recently witnessed the intersection where India’s population has surpassed China’s. The positive demographic tailwinds in India, as well as Africa for that matter, will be a key driver of growth and returns while the negative effects of demographic headwinds in other, more developed nations will be a key issue to consider as well. Given the diverging nature of global returns, it would be smart to seek growth and excess returns in geographies on a more diversified basis.
Now, seven months into 2024, we can confidently continue to say the constructive outlook is largely unprecedented. Investors in the local fixed-income space have robust, forward-looking return prospects on the table, with some valuations and opportunities we have not seen in decades. There’s a celebratory mood of optimism in South Africa, with an energy we hope to add to and continue. The future really does look bright!