Interesting Articles

The dollar had its weakest month in 5 years as US data disappointed, the number of confirmed Covid-19 cases rose, and the probability of a Democratic victory increased. While Trump trailed Hillary Clinton in the 2016 presidential polls, he only lagged by 3%, and national opinion polls put Biden almost 10% ahead of the incumbent going into November’s US elections. Nevertheless, Trump made sure to steal the headlines, implementing sanctions against Chinese and Hong Kong officials, stripping Hong Kong of visa-free travel to the US and removing Hong Kong’s special economic status. The US rejected China’s claims to resources in the South China Sea and plans to prevent investment in US-listed Chinese firms. The US also ordered China to close its consulate in Houston to protect American IP and subsequently invaded the consulate. The UK declared that Huawei technology will not be used in its 5G network, while the EU is preparing to take action against China for the controversial Hong Kong security law. Despite this, China’s stock market led the equity rally in July, as Trump’s influence begins to wane Read more >>
We are halfway through the year and, despite a strong recovery, markets are still caught between conflicting signals. On the positive side, forward-looking indicators such as Empire and Philly Surveys suggest that the recession is already over in the US; global growth is set to rebound in Q3 as economies open up; a Covid-19 vaccine is likely soon given the unprecedented government funding to drug makers; policy remains supportive; and a potential Biden victory could contain geopolitical risk with China. Read more >>
Global economies began their slow emergence from lockdown in May, evidenced by Google’s Global Mobility Index, which reviews phone location data from 125 countries (you are being watched!). The Oxford Stringency Index reflects a similar story, with most countries dropping to around 70 out of 100 (see Chart 1). Markets rallied as a result of the opening up of economies, further clarity on fiscal support and the provision of additional liquidity. While a second wave of infections is a major concern, after four weeks into the relaxation process there has been little evidence of a resurgence, and analysis by UBS and JPMorgan actually shows a decrease in the daily infection rate in most countries post-lockdown, as social distancing and testing appear to have been effective. Optimism about vaccines is also increasing, as over 160 vaccines are now being researched, with five having started human trials and positive reports about American biotechnology company Moderna’s vaccine and Gilead’s remdesivir. Read more >>
We are at the end of an epoch. An era that began 100 years ago is now reaching its inevitable conclusion. The last several decades saw changes in society, government, finance, and geopolitics that built the world we knew. These changes contributed to the destruction of the old and set the stage for what is next. Change has prepared the way for more change. Many complex factors have aligned to create conditions for a cataclysmic transformation of society. The geopolitics of our world, the mechanics of our financial markets and power structures, and events like the 2008 financial collapse have all laid the groundwork for COVID-19 to impact the world in the manner it has.  This has ignited a spark with secondary and Nth order effects we are just beginning to see unfold. The actions of the last eight weeks have set into motion an unstoppable chain of events. This will forever transform our lives, our markets, and our world. It is time for new ways of thinking and solving problems. Read more >>
The World Health Organisation (WHO) characterised the Covid-19 (coronavirus) outbreak as a pandemic on 11 March. Since then, numerous countries have declared a state of emergency and gone into full lockdown, including the US, UK, Italy, Hungary, the Philippines, Japan and, of course, South Africa. The devastation reached Wall Street which recorded its worst session since 1987 and fell 34% from its peak, while oil prices are down to levels last seen in 2002. The effect also touched the South African All Share Index which found a short-term bottom, 36% from its January peak. World governments have compared Covid-19 to a war, noting significant human and economic global challenges, and the impact on global GDP is somewhere between a natural disaster and a deep recession. 2020 growth will follow the pattern of a natural disaster, with the deepest GDP fall since World War II, but is expected to rebound sharply by the end of the year. However, lingering uncertainty, job losses and business closures will weigh on demand until at least the end of 2021. There have been seven global recessions over the last century of this magnitude: two driven by war (World Wars I and II), two driven by balance sheet recessions (the 1930s Great Depression and the 2008 Great Financial Crisis), two driven by oil shocks (1973 and 1981) and now the first to be driven by a global pandemic. Read more >>
January had a strong start thanks to a decent earnings season, improving macro data, a tsunami of liquidity and the signing of the US/China trade deal, which pushed global equities to all-time highs in January. However, the coronavirus brought this cyclical bounce to a sudden end.  Hundreds of people have already died as the coronavirus continues to spread, and the WHO has declared a global health emergency. Working against time, Chinese officials have announced multiple measures to contain the epidemic, which shows no immediate signs of abating. The economic impact is potentially devastating: economists have estimated that the 2003 SARS epidemic was responsible for a 1–2% dent in China’s economic growth and a 0.5% dip across southeast Asia.  The big picture: Over the last twenty years, epidemics have been on the decline (see Chart 1), and the effect on markets will likely be limited should the hit to global growth be contained. However, rising daily mortality rate headlines have caused fear-induced knee-jerk reactions, and markets fell during the month, with oil down 17% from its intra-month peak. Longer term, we remain well positioned for cyclical bounce in global growth driven by looser monetary conditions and improved trade conditions. In the short term, we have reduced our EM overweight until further clarity is available. Read more >>
The IMF made a fifth cut to its 2019 global growth forecast, reducing the forecast to 3% for 2019; this is its weakest level since 2009, caused by trade war tensions that are undermining investment and growth. The World Trade Organisation cut its forecasts for global trade growth for 2019 to 1.2%, also the lowest level in a decade. Central banks continue to do their best to support growth, with the US Federal Reserve Bank cutting interest rates for the third time and restarting quantitative easing, while the Reserve Bank of Australia cut rates to a record low of 0.75%. India also cut rates, and Russia’s central bank cut their key interest rate from 7.0% to 6.5%. Enhanced liquidity from central banks, combined with a partial US-China trade deal, resulted in emerging markets reaching their strongest levels in three months. At quarter end, October flash PMIs also suggested a potential upturn in global manufacturing, which should see the market strength continue into year end. Despite renewed demand, however, oil remains sluggish at $56 a barrel, after Russia said it is still too early to talk about deeper output cuts. Read more >>
The tax benefits of investing in a retirement annuity fund (RA) have meant that to date they have been a popular choice for retirement savers. Many RAs offered the additional benefit of investment flexibility, allowing individual investors to be fully invested in equities by applying investment limits only at the fund level. Some clients have expressed concern that the revised retirement fund investment regulations put them at a disadvantage as they cannot invest fully in equities (see the text box below). These investors could forego the tax benefits of RAs and avoid their restrictions by rather investing directly into unit trusts, also known as ‘discretionary’ investments, to try to maximise their long-term returns. This raises an important question: do the benefits of an RA outweigh the potential for higher returns from full exposure to equities? The answer to this question depends on your circumstances, most significantly your investment period and your marginal tax rate, as well as the long-term outlook for equities. Read more >>
Professor  Hausmann  was  in  South  Africa  in  February/March  2017  at  the  invitation  of  the  Centre  for  Development  and  Enterprise,  giving  a  series  of  lectures  to  various  audiences  both  in  government  and  out.  This  report  distils  some  of  the  key  insights  offered in those lectures. The first few entries set out how Professor Hausmann thinks development happens; the last set out his concerns about the deep, historical mistakes South Africa could be making. Read more >>
The value proposition for advisors has always been easier to describe than to define. In a sense, that is how it should be, as value is a subjective assessment and necessarily varies from individual to individual. However, some aspects of investment advice lend themselves to an objective quantification of their potential added value, albeit with a meaningful degree of conditionality. At best, we can only estimate the “value-add” of each tool, because each is affected by the unique client and market environments to which it is applied. Read more >>

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