Manager Comments – 31 May 2023
In light of the current economic climate, our investment strategy focuses on portfolio diversification and offshore allocation. This approach aims to mitigate domestic risks associated with load-shedding while taking advantage of favourable economic data and growth prospects in the US and EU markets. We have chosen to avoid investments in China due to the faltering post-lock down economic recovery. Additionally, we are exploring opportunities in the Japanese market, which shows promising signs of growth. By July 2023, we anticipate reaching a full 45% offshore allocation in our Regulation 28 portfolios, with offshore Namibian bonds contributing to enhanced portfolio diversification.
South Africa: South Africa’s annual inflation rate declined to an 11-month low of 6.8% in April 2023, below market forecasts but still above the upper limit of the South African Reserve Bank’s target range. As a response, the Monetary Policy Committee increased the repurchase rate by 50 basis points to 8.25% per year, effective from May 26, 2023. Headline inflation is projected to fall back within the SARB’s target range in the second half of 2023. However, due to factors such as power cuts,weaker commodity prices, and external conditions, real GDP growth is expected to decelerate sharply to 0.1% in 2023.
United States: The annual inflation rate in the US likely fell to 4.1% in May 2023, the lowest since March 2021, primarily driven by lower energy prices. The Federal Reserve responded by raising its key interest rate from 5% to 5.25% as part of its ongoing efforts to combat inflation. However, the Fed has indicated a possible pause in rate increases to evaluate the impact of monetary tightening on the US economy.
Global: The global economy in general continues to face significant challenges, including weak growth prospects, elevated inflation, and increased uncertainties. Factors such as the legacy effects of the COVID-19 pandemic, the protracted war in Ukraine, the impacts of climate change, and shifting macroeconomic conditions are weighing on the global outlook. Aggressive interest rate hikes, prompted by stubbornly high inflation in both developed and developing countries, have tightened financial conditions and amplified debt vulnerabilities.
China: The economic recovery in China following its lock down is questionable, as companies may have already made alternative manufacturing plans excluding China. The expected post-lock down recovery has not materialised, despite initial positive news in that regard.
Europe: The European economy has displayed resilience within a challenging global context. Lower energy prices, reduced supply constraints, and a robust labour market supported moderate growth in the first quarter of 2023, dispelling concerns of a recession. As a result, the growth outlook for the EU economy has been revised to 1.0% in 2023.
Japan: Following years of subdued growth, the Japanese economy experienced a significant rebound in 2021, with a real GDP growth rate of 2.1%.
Namibia: By the end of September 2023, the Namibia 10 Years Government Bond Yield is expected to be 16.912%.