This question struck me after reading the book “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes” by Zachary Carter. Keynes lived through two world wars and the Great Depression, and dared to be original. His ideas revolutionised economic theory and shaped generations of economists, central bankers and policymakers. Even today, as the world grapples with the pandemic-induced recession, many governments are still following Keynes’ policy of aiming to spend their way out of economic trouble.
Keynes also famously said: “Ideas shape the course of history.” So back to the question I posed at the outset. Can we still claim to have original ideas? And if so, do we at Ninety One bring original thinking into how we serve you? I have given this a lot of consideration and truly believe that there are great examples of original thinking in our business. Ninety One’s leading insights on living annuities have reshaped how advisors invest and plan for their clients’ retirement. Another example is the contribution of Clyde Rossouw and his team, who were pioneers of the Quality thesis on offshore investing in South Africa. We have spent countless hours discussing with our clients the philosophical purity and portfolio differences that set them apart, which their long-term performance bears out. In this edition, you can read more about where they’re finding growth opportunities in global equities.
For me, Keynes will serve as a personal challenge to make sure that the ideas we bring to you truly do make a difference in how we manage your money.
Another interesting aspect of the book was that it ended with a very unnerving reminder that historically, major change and victory for democracy and equality came at the end of a gun. Is South Africa at the end of a gun? Even if we’re not staring into the barrel of a gun, we’re most certainly on a knife’s edge. Will Cyril Ramaphosa’s Economic Reconstruction and Recovery Plan signify the start of meaningful positive change or will we yet again be hamstrung by our government’s seeming inability to implement reforms? Will SA equities make a comeback? Will foreign investors be lured back into our bond market? Peter Kent and Malcolm Charles, who manage the Ninety One Diversified Income Fund, explore what could move the needle in terms of attracting foreigners back into our market again.
As if the challenges we face weren’t enough, the IMF expects our economy to contract by 7% this year. Over the last quarter, the world started to appreciate the severity of the economic crisis and came to realise that this is one of the worst health crises in history. The IMF is forecasting a 5% contraction globally in 2020, the deepest global recession since World War II.
Nonetheless, we believe there are still significant opportunities for active managers to allocate capital to companies to make money, both in South Africa and globally. Given the increased focus by the media on active versus passive management, we have included a comprehensive analysis of the SA market in this quarter’s Taking Stock newsletter, with interesting findings. While we’re unashamedly active, the key to success is not to sit on the fence. A manager with an index plus or minus strategy will find it increasingly difficult to differentiate itself in this competitive industry.
Third quarter returns were more muted after the big swings of the first two quarters. The FTSE/JSE All Share Index returned 0.7%, largely on the back of gold and platinum counters as well as some of the banks and retailers benefiting from the easing of the lockdown. The SA bond market was up 1.5% as a far more hawkish than expected South African Reserve Bank kept the repo rate unchanged for the quarter. Foreigners continued to sell bonds despite the yields on the long end being very attractive. Finally, property continued its slide with no reprieve, declining by more than 15% over the quarter.
What did this mean for industry flows? As could be expected, flows into growth assets remained very muted; the big winner continued to be the fixed income space, particularly those funds with a skew towards high duration assets. There was also continued interest in offshore assets.
Meanwhile, the debate around prescribed assets continues. We don’t believe prescription is a sensible solution for the problem that government wants to solve, which is to find a funding mechanism for infrastructure investment. However, we are taking this issue seriously and are engaging with government, industry bodies and the regulators.
As we near the end of 2020, I would like to thank you again for sharing in a big year for Ninety One. We know our listing and rebranding had an impact on you, given that you had to take the time to explain the changes to your clients. We really appreciate your contribution and want to assure you that we are doing our utmost to continue building on our name recognition.
Despite the challenges we face, let’s try to end 2020 on a positive note. Over recent months I’ve driven through many parts of our beautiful country, so do take time out to appreciate everything South Africa has to offer and enjoy a sho’t left this festive season.
As always, thank you for your support.
Sangeeth Sewnath
Deputy Managing Director
View all Taking Stock recordings here:
https://ninetyone.com/en/south-africa/events/taking-stock-spring-2020
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For emerging markets like South Africa, we have reason to celebrate. The Trump presidency was volatile, and emerging markets get punished during periods of volatility. Additional stimulus will help, plus with Biden at the helm of the US, “risk on” is likely to be more prevalent than “risk off”, which is good news.