STANLIB Podcasts

The MTBPS delivered by the Minister of Finance disappointed bond investors, says Victor Mphaphuli, STANLIB Head of Fixed Income. In the current fiscal year, revenue collection is weaker and expenditure greater than expected, with the budget deficit seen at 5% vs 4.5% projected in February. The 10-year government bond peaked at 10.5% after the speech from 10.35% earlier, and the rand weakened by 0.9%. However, the risks to revenue collection are on the upside and there is no risk of an imminent credit downgrade.

Tarryn Sankar, Head of Credit in the Fixed Income team at STANLIB Asset Management, says the MTBPS was in line with expectations on fiscal slippage. Notably, the Minister of Finance announced little support for SOEs and specifically did not address Transnet’s financial position. The focus on innovative ways to fund infrastructure projects and create opportunities for the private sector to participate, is welcomed. Tarryn expects the credit rating agencies will watch SA’s ability to maintain a sustainable revenue path.

Projections for medium-term economic growth in the MTBPS are low, at around 1.8% average a year, suggesting that government’s initiatives are not going to lift growth meaningfully. These initiatives are mainly focused on infrastructure using private-public partnerships. However, SA needs sustainable growth above 3% to make an impact on unemployment. In this podcast, STANLIB Asset Management, Chief Economist, Kevin Lings, also notes the evident fiscal slippage this year as well as the elevated level of debt to GDP projected for the next three years.

In this podcast Rademeyer Vermaak, Head of Systematic Solutions, discusses how their precise approach towards managing risk enables the team to rate the effect of potential macroeconomic shocks on each counter in each portfolio and neutralise those risks. He also discussed why the managers have decided to overweight certain financial counters. The STANLIB Enhanced Multi Style Equity Fund has continued to outperform its benchmark for the 12 months to 30 September 2024.

Rademeyer discusses:

• The impact of the Chinese government stimulus announcement on global resource stocks

• The team’s holistic, measurable process and the key factors taken into consideration both locally and globally

• The stand-out stocks for the quarter and how the team have adjusted the weighting for those

• The STANLIB Equity Fund’s offshore strategy with J.P. Morgan Asset Management and the STANLIB Global Select Fund

Marius Oberholzer, Head of Multi-Asset, says SA equities performed strongly in Q3, led by financials and property, and there was a strong performance from the SA All-Bond Index as well, in response to global and local interest rate cuts. China’s recent announcement on economic stimulus has propelled Chinese asset markets and South African resources stocks. In Q3, the rand strengthened almost 5% to R17/$ and also against other key currencies, which held back offshore returns for South African investors. The STANLIB Multi-Asset Cautious Fund did almost as well as the Global Growth Fund – showing that all assets are risk assets. Marius says the biggest macroeconomic risk on the horizon is the US presidential election, which will influence markets. He also discusses some of the benefits of using multiple strategies, for example in Q3 the team successfully hunted for value among mid-cap SA Inc stocks.

SA’s inflation trajectory is encouraging, in the short term. The September inflation rate, at 3.8%, was down from 4.4% in August, with core inflation at 4.1%, and the impact of falling fuel prices should help to move inflation down to 3.1% in October. This trend should encourage the South African Reserve Bank to keep cutting interest rates, with a 25 bps reduction expected in November.

Various uncertainties face the US economy. If the US presidential election results in a Donald Trump win, as polls are indicating, it would be followed by policy change. Several indicators suggest the US economy is growing strongly, putting pressure on inflation and making future interest rate cuts less predictable. The key indicator to watch will be the strength of the labour market.

SA’s inflation trajectory is encouraging, in the short term. The September inflation rate, at 3.8%, was down from 4.4% in August, with core inflation at 4.1%, and the impact of falling fuel prices should help to move inflation down to 3.1% in October. This trend should encourage the South African Reserve Bank to keep cutting interest rates, with a 25 bps reduction expected in November.

Various uncertainties face the US economy. If the US presidential election results in a Donald Trump win, as polls are indicating, it would be followed by policy change. Several indicators suggest the US economy is growing strongly, putting pressure on inflation and making future interest rate cuts less predictable. The key indicator to watch will be the strength of the labour market.

Click here to listen to the podcast.

Globally, central banks cut rates and this helped local bonds. The STANLIB Flexible Income Fund was already holding a sizeable overweight in SA bonds and SA property, which paid off handsomely for clients in the quarter. The team was not surprised by the SARB’s modest 25 bps rate cut, but expects a series of cuts to mid-2025, especially as SA’s inflation rate is expected to fall below 4% for the rest of the year. The bond rally is expected to continue: the Fixed Income team estimates fair value for the 10-year SA government bond at 9.75% vs the current 10.35%. Sylvester says the next boost for bonds is likely to come from the Medium-Term Budget Policy Statement late in October. The fund’s one-year return was 17.8%, which is 8.3% above its benchmark.

STANLIB is an authorised Financial Services Provider in terms of FAIS and a registered manager in terms of CISCA.

If China doesn’t have any growth ‘that really will impact our exporters, especially our commodity exporters, in terms of their being able to sell stuff into China’ – Ndivhuho Netshitenzhe from Stanlib.

US retail sales and industrial production data for September tell different stories. Retail sales were surprisingly good, probably because the US economy continues to add jobs. However, US industrial production declined, indicating that the manufacturing sector lacks the same buoyancy as the retail sector. The answer seems to be that US consumers are buying imported items, which feeds the Trump campaign slogan about raising import tariffs.

SA’s retail sales for August were stronger than generally expected, and over the past six months the retail sector is showing improvement, despite high interest rates and unemployment. Relief from load shedding may have encouraged more retail activity, as well as the lower inflation rate, especially cheaper fuel. The latest data does not reflect the cash injection from the two-pot system and the recent interest rate cut, which should give local retailers a good end-of-year season.

Click here to listen to the podcast.