The great unwind
Managing money for clients in 2018 has been exasperating, to say the least.
Lazarus Shigwedha - The global economy is facing increasing headwinds. At its core lies the policy dichotomy around globalisation as the east, in particular China, edges ever closer to the global economic throne.
Financial markets have clearly translated these challenges in the form of increased volatility. Managing money for clients in 2018 has been exasperating, to say the least.
Factors driving volatility and uncertainly include unwinding of the quantitative stimulus (QE) in the USA and China repositioning its economy from an infrastructure, export-driven economy to a more balanced economy in which intellectual property and consumption play a greater role. By implication this translates into a greater need for imports.
Chinese president Xi Jinping’s speech at the inaugural China International Import Expo (CIIE) held earlier this month underscored the changing economic steers and dynamics that lie ahead for China. Meanwhile, the USA is going through some introspection: president Donald Trump is increasingly inward looking, seeking to stimulate the economy by bringing jobs back home and redrawing historically important trade relations.
Across emerging markets, the challenges include heightened market and currency volatility on the back of weaker currencies, particularly versus the US dollar. Countries with twin deficits in the form of trade and current accounts have suffered the most. Essentially, debt levels and the cost of funding these deficits have increased due to weaker exchange rates and increasing hard currency borrowing costs as interest rates normalise in the USA.
Closer to home, the rand and by virtue of the currency peg, the Namibian dollar, have sold off around 12% year to date. Despite the change in leadership in South Africa, which was initially welcomed by the market, reality has settled in. Change is difficult, while policy implementation takes time and sustainable results will only be visible in the mid to long term.
Namibia
In Namibia, GDP growth continues to disappoint, with growth forecasts consistently having been lowered.
The dismal local listed equities performance over the last 18 months underscores the poor performance of the local economy. Mind you, this is despite primary listed equities liquidity concerns amidst increased local asset investment requirements. Reported corporate earnings growth has declined significantly over the last 12 to 24 months, while local bank’s return on average equity have contracted by around 10%’ some banks are barely meeting their cost of capital.
Stock markets are always good indicators of the underlying economic fundamentals. We haven’t seen a lull like this in a decade.
For a relatively small economy, GDP growth of less than 1% is a clear indication of the urgent need for policy introspection. With property prices deflating as much as 30% year on year, households are feeling a balance sheet squeeze. Household real disposable incomes are at best stagnant, but a pickup in forecasted inflation towards 6% on the back of higher food and administered prices will add further pressure.
Added to that, the rising cost of debt will further negatively impact household consumption as the debt burden on household becomes increasingly unbearable. Household debt to income ratio is now around 85%, a very worrying level. The composition of household debt in Namibia has also materially shifted to higher-cost unsecured lending which costs much more to service that collateralised debt (anything between the prime lending rate and factor of 2 to 2.6x excluding admin fees and insurance).
The challenges facing the public purse have been well publicised. Thus, asking the “government to do something” is out of the question. We are in a long and painful deleveraging period – one that we have not yet experienced – but that is the nature of cycles. We need to refrain from poorly articulated policies; this is not the time for populist knee-jerk reactions regarding fiscal and monetary policy.
How should one navigate these difficult times?
Investing remains a long-term game, which means one needs to navigate both the economic peaks and troughs.
The Investec Namibia Managed Fund has a track record of well over 15 years, consistently delivering inflation-beating returns for our clients. We understand that clients need a diversified investment solution that allocates capital across assets classes, seeking the best risk- adjusted returns. We have a clear investment philosophy and an unambiguous process through which we aim to extract the best risk-adjusted returns along the risk curve for our clients.
Lazarus Shigwedha is a portfolio manager at Investec Asset Management.
Financial markets have clearly translated these challenges in the form of increased volatility. Managing money for clients in 2018 has been exasperating, to say the least.
Factors driving volatility and uncertainly include unwinding of the quantitative stimulus (QE) in the USA and China repositioning its economy from an infrastructure, export-driven economy to a more balanced economy in which intellectual property and consumption play a greater role. By implication this translates into a greater need for imports.
Chinese president Xi Jinping’s speech at the inaugural China International Import Expo (CIIE) held earlier this month underscored the changing economic steers and dynamics that lie ahead for China. Meanwhile, the USA is going through some introspection: president Donald Trump is increasingly inward looking, seeking to stimulate the economy by bringing jobs back home and redrawing historically important trade relations.
Across emerging markets, the challenges include heightened market and currency volatility on the back of weaker currencies, particularly versus the US dollar. Countries with twin deficits in the form of trade and current accounts have suffered the most. Essentially, debt levels and the cost of funding these deficits have increased due to weaker exchange rates and increasing hard currency borrowing costs as interest rates normalise in the USA.
Closer to home, the rand and by virtue of the currency peg, the Namibian dollar, have sold off around 12% year to date. Despite the change in leadership in South Africa, which was initially welcomed by the market, reality has settled in. Change is difficult, while policy implementation takes time and sustainable results will only be visible in the mid to long term.
Namibia
In Namibia, GDP growth continues to disappoint, with growth forecasts consistently having been lowered.
The dismal local listed equities performance over the last 18 months underscores the poor performance of the local economy. Mind you, this is despite primary listed equities liquidity concerns amidst increased local asset investment requirements. Reported corporate earnings growth has declined significantly over the last 12 to 24 months, while local bank’s return on average equity have contracted by around 10%’ some banks are barely meeting their cost of capital.
Stock markets are always good indicators of the underlying economic fundamentals. We haven’t seen a lull like this in a decade.
For a relatively small economy, GDP growth of less than 1% is a clear indication of the urgent need for policy introspection. With property prices deflating as much as 30% year on year, households are feeling a balance sheet squeeze. Household real disposable incomes are at best stagnant, but a pickup in forecasted inflation towards 6% on the back of higher food and administered prices will add further pressure.
Added to that, the rising cost of debt will further negatively impact household consumption as the debt burden on household becomes increasingly unbearable. Household debt to income ratio is now around 85%, a very worrying level. The composition of household debt in Namibia has also materially shifted to higher-cost unsecured lending which costs much more to service that collateralised debt (anything between the prime lending rate and factor of 2 to 2.6x excluding admin fees and insurance).
The challenges facing the public purse have been well publicised. Thus, asking the “government to do something” is out of the question. We are in a long and painful deleveraging period – one that we have not yet experienced – but that is the nature of cycles. We need to refrain from poorly articulated policies; this is not the time for populist knee-jerk reactions regarding fiscal and monetary policy.
How should one navigate these difficult times?
Investing remains a long-term game, which means one needs to navigate both the economic peaks and troughs.
The Investec Namibia Managed Fund has a track record of well over 15 years, consistently delivering inflation-beating returns for our clients. We understand that clients need a diversified investment solution that allocates capital across assets classes, seeking the best risk- adjusted returns. We have a clear investment philosophy and an unambiguous process through which we aim to extract the best risk-adjusted returns along the risk curve for our clients.
Lazarus Shigwedha is a portfolio manager at Investec Asset Management.
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