Quarterly global market outlook | Q1 2020

Hindsight is always 20/20

Where to from here?

 

The decade of 2010 kicked off with the ubiquitous euphoria of South Africa hosting the 2010 FIFA soccer world cup. There was much fanfare and optimism regarding the prospects for South Africa leading up to and post the successful hosting of the global show piece. Unfortunately, it was downward from this point on with the decade culminating in stage 6 load shedding, a stagnant economy, a pedestrian domestic equity market and South Africa sitting on the cusp of a sub-investment grade credit rating. The rapidly changing fortunes and mood within the country can be extended into a metaphor on financial markets and a lesson to investors. Economic forecasting is an imperfect science and dependent on many factors which we as investment professionals don’t even know exist yet. At the height of the financial crisis just before the start of the 2010 decade, market participants were forecasting a complete meltdown of the global economy and a lost decade for financial assets. They were wrong. In 2013, market participants thought the Federal Reserve (soon followed by other major central banks) would begin normalising interest rates fairly rapidly to a level of around 5% in the US. They were wrong. Investors have been worried about US equity multiples and fears about a looming recession for the better part of 18 months now. They’ve been wrong. A number of investment professionals have been exceedingly bearish on domestic bonds for 5 years now given South Africa’s deteriorating fiscal stance. They’ve been wrong. Attempting to make sweeping statements about future macroeconomic drivers of financial markets is a notoriously dangerous thing to do. Investors ultimately need to appropriately position their portfolios to meet their risk appetite and access multiple sources of return through being diversified across sensibly priced assets.

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