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Summary of views
Growth: We expect GDP growth of 1,8% yoy in 2022 and 1,9% in 2023.
Currency: Our USDZAR fair value estimate remains at 15,20. Our neutral range for the USDZAR is between 15,10 and 15,70. As such, we are neutral USDZAR at 15.50.
Inflation: We forecast CPI (average) at 5,6% in 2022 and 5,1% in 2023.
SARB: We expect the SARB to hike by 50bps in May.
Bond yields: Our fair value estimate for the 10-year yield is 9,9% (R2032). Our fair value range for the R2048 is 10,50-11,00%. We see value in ILBs, especially in maturities of 10-year and less.
Rating action: Fitch rates South Africa “BB-/Stable”, Moody’s “Ba2/Stable” and S&P “BB-/Stable”. We expect no further changes in either the outlook or the rating from any of the three rating agencies in 2022.
Source: Nedbank CIB Markets Research
Disclaimer – The views and observations in this report represent the analyst’s own and not the Multivest nor Nedbank Group house view.
Multivest Chartbook - April 2022
Multivest Portfolio Returns
Disclaimer: The investor is liable for CGT on any transactions in the units of the underlying unit trusts within the wrap funds. Compulsory investments are not subject to CGT. Performance is calculated using net returns(after fees) of the underlying unit trusts, and quoted excluding wrap fund fees. Performance quoted is pre-tax. Fund performance numbers shown are for a notional portfolio and do not reflect the actual performance of the client invested in the wrap fund due to timing differences of investments or disinvestments of the client. Benchmark returns for CPI are based on actual published returns and an estimated one month return for the month of the report date. ASISA Benchmark returns are the ASISA returns available as at the time of reporting.
Risks all around
April was a month charecterised by some risks intensifying and new ones entering the fray. And in May some of the risks will become reality, contributing to new risks.
Still increasing fuel and food prices, declining economic growth, China’s forceful COVID-19 lockdowns spreading to larger parts of the country, the ongoing war between Russia and the Ukraine, increasing interest rates, an inverting US bond-yield curve, supply-chain delays, and so on, headlined international markets in April. Add to this loadshedding and massive floods in South Africa - and it explains the sharp declines in the rand exchange rate and share markets, as well as increasing yields.
The International Monetary Fund estimated global economic growth to slow from a preliminary 6.1% in 2021 to 3.6% in 2022. The forecast for 2022 is 0.8 percentage points lower compared to the forecast of January. The downgrade in international economic growth can in its entirety be ascribed to the effects of the war between Russia and the Ukraine and China’s “closure” of many cities to counter the spread of COVID-19.
Strong rising consumer price inflation, driven mostly by high demand and rising oil prices stemming from the war between Russia and the Ukraine, caused markets “asking for an increase of 75 basis points in US interest rates. However, the Federal Open Market Committee is expected to rather raise interest rates by at most 50 basis points later this week. In addition, the recent inversion in the yield curve (a reliable predictor of economic downturns), analysts are increasingly speculating that the US is heading for a recession within the next two years.
Although producer prices are rising strongly in Germany, the European Central Bank (ECB) is not seen to raise interest rates as quick and severely as in the US. German producer prices were up 30.9% in March from a year earlier, the fastest pace since 1949. This was driven by higher electricity, gas (natural gas prices were up 144.8% from a year earlier) and fuel prices as Germany is heavily reliant on Russia for energy. As such, Germany now has some of the highest inflation rates in Europe, a fact that the ECB cannot ignore.
However, ECB president Lagarde explained why the ECB is not following the Federal Reserve in raising interest rates. She said compared to the US the Eurozone faces more downside risks to growth, largely due to the dependence on Russian energy, as well as uncertainty about the future trajectory of the war. She maintained there will be no action on interest rates until at least in June after the ECB concludes its programme of asset purchases. Only after this will the ECB assess whether interest rate increases will be necessary.
In Japan, consumer price inflation is also increasing, while the yen is depreciating, leading to speculation about a government intervention package. China’s economic growth is due to slow sharply due to strict lockdown rules been implemented in more than 70 cities. China’s central bank did reduce banks’ reserve requirement by another 25 basis points, but it will have little impact due to the lockdowns limiting the use of more liquidity.
South Africa’s economic growth prospects continue to suffer as a result of the mentioned international risks and home-grown problems such as electricity shortages. The risk-off environment contributed to the rand depreciating more than 7% in April against the US$ (from R14.62 to R15.86), while the JSE ALSI lost 4.1%. The floodings in especially Kwazulu-Natal is expected to lower economic growth to 1.6% (previously 1.9%), while consumer price inflation is expected to now average 5.7% in 2022. As such, chances increased that the repo rate will end the year at 5% (previously 4.75%).
Multivest Economic Division