Feedback on first quarter of 2022

I think we are all feeling rather negative after the first quarter of 2022. The negativity around Covid has been replaced by the same sentiment about the war between Russia and the Ukraine, as well as the constant stream of warnings about hyperinflation and rising interest rates. We have also felt the negativity in our investment returns, so let’s look at where we stand for the year to date:

All Share index                  2.43%

S&P500                               -4.95%

Euro Stoxx 50                    -9.21%

SA Financials                      19.53%

SA Resources 10               14.97%

SA Banks                             24.33%

SA 10-year bond yield     9.61%

USA 10 bond yield           2.39%

USD/ZAR                             -8.33%

EUR/ZAR                             -10.85%

 

Looking at the figures, we can see South Africa is holding up pretty well; mainly due to our resources, which have become very expensive due to the war and supply constraints worldwide. The rand is also strong because the rest of the world is buying our resources and our bonds, which offer a much higher yield than those in developed economies and it seems that among most emerging markets we are the most predictable for now. Our worst performing Top 40 stock is Prosus -39.24% (Naspers -33%), owing to the Chinese clampdown on Tencent and their exposure in Russia, and our best Top 40 stock is Kumba at 42.44%.

 

It must be said that the markets were much lower at one stage and have made a strong comeback over the last few trading days. If things do not escalate in the Ukraine, we will see the attention shift from the war back to the bigger issue of inflation and rising interest rates. These issues are not permanent and will be resolved so do not become too negative. If you switch from equities into cash now, the most difficult thing you will have to do is to switch back into equities at some stage because cash will not give you any return over time. Look at the attached graph of the S&P500 over time and see the small blip the last quarter represents.

Going forward, we have to remember that South Africa has many structural problems that will not be sorted out if the current government continues on the path of self-enrichment and keeps on ignoring the power of private enterprise. Our SOEs are still collapsing and the people in leadership positions are still incompetent. The windfall we have seen in commodities will not last forever and the rand will suffer when it ends.

 

We have to stay diversified with exposure to international markets and the full spectrum of asset classes. If no new disasters materialize, the rest of 2022 will remain volatile but the negativity will be in the price and will present good buying opportunities. Unforeseen geopolitical developments will, however, create a new playing field.

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