2018 Compelling Cash Alternatives - April 2018
How We View Domestic Market Conditions - April 2018
Recent political changes have the potential to positively influence policy implementation and put the local economy on a path to rehabilitation. To achieve a more sustainable higher growth trajectory, the government needs to stabilise parastatals, pursue growth initiatives in earnest, and restore confidence in the country’s institutions. In the short term, growth could receive a boost from consumer spending and inventory renewal as corporate South Africa starts to spend again after a multi-year hiatus.
Inflation should average close to 4.5% over the next two years. Combined with the still low absolute growth level, the South African Reserve Bank has room to provide a bit more monetary policy support in the very near term. We expect interest rates to be lowered by another 25 basis points over the next 6 months.
Local government bonds should benefit from this renewed optimism and contained inflation. However, at current levels, these assets price in a great deal of good news and are at best fair to slightly expensive, keeping us more neutral in our allocation to South African government bonds. Instead, we will look to enter overweight positions at more attractive levels.