Notes from my Inbox - October 2019
“A promise is a cloud; fulfilment is the rain.” – Arab Proverb
THE THIRD QUARTER of this year can best be described as another period of muddling through. Global markets ended flat, the rand weakened and South Africa Inc. shares remained under pressure, with the release of multiple profit warnings and disappointing results that again confirmed how weak the local economy remains. Our funds produced reasonable performance under the circumstances, with a more than 3% benchmark outperformance for the Equity and Top 20 funds, and positive returns from our multi-asset Balanced Plus, Market Plus, Capital Plus and Balanced Defensive funds.
During August, Finance Minister Tito Mboweni surprised the market with the release of an economic reform paper, summarised by economist Marie Antelme. Some of Treasury’s ideas were subsequently endorsed by the ruling party’s National Executive Committee. President Ramaphosa also added his weight to the efforts to kickstart confidence when he appointed a new economic advisory panel. While these are promising signs, there is a desperate need for evidence of tangible action. In her article, Marie discusses her laundry list of concerns that require urgent attention. Only once we see progress on these issues can we expect households and businesses to become more confident about the future.
Closely associated with weak domestic confidence is the debate about the appropriate allocation to international assets. With much better returns from global markets – especially US equities – over the past decade, you often hear the argument that you should sell all your local investments and only invest offshore. This is a sentiment-driven view that assumes that the future will play out exactly as the most recent past. A more reasoned response would be to implement a well-considered long-term investment programme, informed by your own circumstances, that appropriately diversifies your risks across jurisdictions, geographies, sectors and companies. You can read more in my article.
Globally, investors became fixated with negative interest rates, inverted yield curves and the latter’s ability to forecast impending recessions. Fixed income portfolio manager Seamus Vasey unpacks the topic in our lead article. Another key development was the decision by the US Business Roundtable (a group of nearly 200 CEOs representing the largest US companies) to update its statement on the purpose of a corporation, away from shareholder primacy to a broader commitment to all stakeholders. We support this change in thinking. While our primary role will always be to deliver returns for our clients, we are long-term investors. This requires us to think about the sustainability of the environment and societies in which our investee companies operate. If businesses and investors do not play their part in addressing the issues of the day, it is likely that the eventual returns available to their shareholders will diminish. You can read more about what we do to promote good corporate behaviour across the companies we invest in on your behalf in the Coronation Stewardship Report available on our website.
Back home, portfolio manager Tumi Motlanthe outlines the investment case for Shoprite. Globally, investment analyst Chris Cheetham provides insight into the value we see in leading US cable operators. Portfolio manager Suhail Suleman weighs in on China's influence on the emerging market basket, while investment analyst Greg Longe points out why it’s best to be circumspect about frontier market IPOs.
As we enter the last few months of this decade, we remain committed to the singular purpose that has defined Coronation’s culture and actions since 1993: building long-term wealth for our clients. As always, I invite you to contact us via email@example.com if in any way we have not met your expectations.
Enjoy the read and thank you for your ongoing support and trust