The following a summary of reasons for our stance as mentioned above: Q2 –2023
1.Macroeconomic risks prevail, despite inflation retreating from the recent highs.The US treasury yield curve remains inverted which is usually a reliable indicator ofimpending recession.
2.Monetary policy around the world remains hawkish with the US Federal Reservecontinuing to hike rates in 2023. The South African Reserve Bank is following theFed and raised rates by an unexpected 50 basis points, after it pointed out that theeconomy is facing higher levels of inflation than previously expected.
3.Cracks in the financial system are starting to show due to the pressure of higherinterest rates. Some financial institutions which were struggling, like Credit Suisse,Silicon Valley Bank (SVB), First Republic Bank and Signature Bank, failed and weretaken over in recent months.
4.Equity markets have, to some extent, front loaded returns in the first quarter.Earnings growth is expected to slow in the next few quarters, putting pressure onvaluations. Equity markets are pricing in an imminent rate cut, but the bondmarkets are not convinced. Short duration bond yields are still at elevated levelsand the US yield curve remains inverted.
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Prepared by,
HM Jonker
