In an article by Clyde Rossouw of Investec, it is suggested that the global economic recovery will result in better investment opportunities in developed markets (DM) rather than in emerging markets (EM).
For your convenience we have summarised this article below. The full article is available under our Fund Manager’s Comments section on our website.
The tide is turning – developed market equities in the sweet spot
Developed world growth on the upside – economic recovery is underway in the developed world. Investors have shifted their attention back to developed markets, whose equities have outperformed that of emerging markets over the past six months. We expect there to be a huge rotation of EM assets into DM assets.
Emerging markets fighting the inflation demon – the US’s stimulus programmes have caused inflationary pressures in EMs, chasing up asset prices and causing much liquidity. Sustainable growth depends on how well these countries can curb inflation.
South African stock market should offer more value at year end – it is difficult to identify new equity opportunities at present, it is expected that the local stock market will be substantially cheaper by year end.
Inflation expectations already priced into the local bond market – The SA bond market still looks attractive on a relative basis. The market is already pricing in a much weaker rand and higher rate of inflation and will continue to offer value until these levels are reached.
Best returns should come from developed market companies – Offshore holdings will make a material contribution to performance as a result of a depreciating Rand and the attractive valuations of international shares. They should deliver better returns than local equities.