Expectations revealed through the event polls

Equities have rallied hard in the first two months of the year, presumably as more investors have been persuaded by a benign scenario of shallow recessions, retreating inflation and rate cuts.

But is this scenario sustainable? We polled attendees at our events around the country, revealing a nuanced picture:

• over 70% expect a soft landing in the US and pick equities as their favourite offshore asset class, but…
• more than half expect global inflation to remain ‘uncomfortably high’ this year and 80% see no rate cuts until 2024.

Are those convictions mutually exclusive? Can equities rally if sticky inflation data leaves central bankers no choice but to keep their foot on the liquidity hose pipe? We shall see.

Less controversially, over 75% of those polled think that China’s reopening will be good for the global economy in 2023 and the same proportion expect no improvement in load-shedding over the rest of this year.

Our experts’ views on 2023

Sylvester Kobo, STANLIB’s Deputy Head of Fixed Income articulated our big asset class call for 2023: ‘the party is in fixed income this year’. By definition good calls can’t be consensus so we are encouraged that less than half of those polled say that bonds are their favourite domestic asset class this year!

To hear more about our fixed income views and for a deep dive into the STANLIB Flexible Income Fund, our flagship unconstrained multi-asset fixed income proposition, join our webinar on 1 March with Sylvester and our Deputy Head of Investments Henry Munzara. Please reach out to your STANLIB business development manager if you need more information.

STANLIB Multi-Strategy Senior Portfolio Manager Warren Buhai gave us a window into the way the team looks at the future, defining different macroeconomic scenarios and applying a probability to each. Their risk-adjusted outlook then feeds through to asset class allocations. Dr Michael Streatfield, part of the Multi-Strategy team, published an interesting piece last week explaining this methodology; you can find it here.

Offshore allocation is always a talking point for South African multi-asset investors, and the Multi-Strategy team did a lot of work last year on the risks and rewards of allocating offshore (you can find their excellent white paper here).

Maximising offshore exposure

The team’s view also remains that the more risk you can stomach (i.e., the higher the returns that you are after), the more you should allocate offshore; if you can hedge you should do so. In our poll we asked our attendees for their optimal offshore allocation: the majority would allocate between 25% and 35% of their assets offshore. The attendees in Cape Town seemed keener to get some international exposure, with over 60% indicating they would choose to allocate 35 – 45% of their assets offshore.

The Multi-Strategy team thinks that offshore equity markets (apart from the US) look cheap, with the caveat that earnings are at cyclical highs and US margins could have some way to fall. Nevertheless, the return outlook for all asset classes has improved over the last 12 months.

Does the macro view support these expectations?

A picture tells a thousand words, and our Chief Economist Kevin Lings captured the key factors influencing the macroeconomic outlook in two slides.

As ever, the trajectory of the global economy this year will be decided by the complex interactions between growth, inflation and interest rates. Kevin is optimistic about:

• inflation easing
• central banks cutting rates either later this year or in 2024
• the US recession being relatively mild.

He also recognises that China’s reopening post-Covid 19 is an important source of risk: the pent-up demand of 400 million middle-class Chinese can have a significant impact on commodity prices and thereby the inflation-rates conundrum.