Over the quarter, market tones shifted away from fighting inflation with tightening monetary policy, to recessionary fears. It has been uncomfortable being invested in any market related assets and with that, volatility has been high. Other than cash, most asset classes are down. Since the beginning of 2022, the MSCI All Country World index is down 25,6%. The S&P 500 index has lost 23.9%, while the Dow Jones and Euro Stoxx indices are down 16.3% and 22.8%, respectively. Back home the FSTE/JSE All Share Index declined by 10.1% and while steady against the British Pound and the Euro, the rand declined by 16.4% against the USD. The price-to-earnings (P/E) multiple of the S&P 500 has declined by 26% during the first half of 2022 (and is currently estimated at 18x). Consensus forward earnings estimates are still expected to increase, which is contrary to what would typically happen during a recession and may still disappoint in the short term. The US consensus earnings forecast is now not dissimilar to the global earnings forecasts. It is for this reason that a cautious stance may be warranted. However, as assets get cheaper, the longer-term return prospects do improve. Fear created by recent losses may blur future opportunities but remain patient investors and assess the opportunities as they present themselves.
The potential depth of a recession in Europe, the sharper than expected slowdown of the Chinese economy, rate hikes in the US with the resultant strength in the US Dollar as well as ongoing and rising geopolitical tensions are global macro headwinds impacting significantly on the South African economy. Add the local challenges of desperately needed power, rail and port reform, and political tensions ahead the ANC national elective conference in December, the outlook for domestic economy remains sanguine.
Volatility may be the order of the day for now as we adjust to historically higher inflation and lower growth. Inflation is a real threat to spending power, making the investment decision of selecting inflation beating assets so crucial. More importantly, now is the time to sit back and reassess your optimal asset allocation based on your investment horizon and financial requirements.
While we feel unsettled and uncomfortable, it is worth noting:
“You can’t predict. You can prepare.”
By Howard Marks of Oaktree Capital Management
Our long-term bias in the portfolio allocation of our clients is to equities where relevant. Over time, equities outperform most investable asset classes available and more importantly provide real growth in the long-term. This holds true both locally and globally. During periods of expected recession, this changes and markets will fall. In time, this provides an opportunity to re-invest.
We continue to aim to be the wealth manager of choice for high net-worth individuals seeking tailored investment solutions and top-tier advisory services. We see an abundance of opportunity for investors in both local and offshore markets, and we are looking forward to sharing those opportunities with you.
The table below highlight the performance of selected markets and asset classes to 30 September 2022
Thank you for your interest and ongoing support.
We welcome any feedback or questions.
Oliver, Ulf, Vanessa and Warren