Old Mutual Investment Group

Portfolio Manager, Arthur Karas, takes a closer look at latest market developments with The Money Show’s Bruce Whitfield

April 12, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Portfolio Manager, Arthur Karas, takes a closer look at latest market developments with The Money Show’s Bruce Whitfield
Show Notes Transcript Chapter Markers

Arthur Karas discusses the fallout for markets of steady slowing growth across global economies as well as the implications for the JSE of the major events driving this downturn.

Bruce Whitfield  00:00

And on to Arthur Karas, Portfolio Manager at the Macro Solutions business at the Old Mutual Investment Group. Key features just today, Arthur, I mean, this continued sort of slow trickle down across the globe is very much sort of present in our market at the start of this new week.

Arthur Karas  00:24

Absolutely, we're all looking forward and saying that there's still some good growth left for the time being. But looking a little bit further ahead, we expect growth to slow and start having an impact on economies around the world.

Bruce Whitfield  00:39

And that's what's playing out in markets around the world. How, then, what is the outlook for the JSE, then, for our investments on local markets? As we have these sort of multiple... um, apocalypses, if you like, of invasions of Ukraine, rocketing oil prices, rising global inflation, rising interest rates around the world, rising prices in almost everything we consume... how does this play out as far as markets are concerned?

Arthur Karas  01:09

With the JSE, we need to break it up into a few bits. So, the one is commodity companies and conventionally, you'd expect the commodity companies to be very directly affected by any change in economic growth. You'd expect that impact on the price of the metals that they sell. So, that should immediately impact on them and see them going down. 

We've got a few kinks in that normal story, though, because what we've seen at the moment, is we've seeing exports of palladium out of Russia being affected by this. And that's making people say, well, maybe this puts our palladium, our PGM producers, in a slightly better position. And maybe that'll be good for them. 

In the long run, though, it's really automotive sales that are good for them. So, if we don't sell more cars, even if there's less palladium coming out of Russia, that will be a problem. But one part of the commodity complex, I would say, is slightly different, and that's the energy part. So, that's the coal and oil producing companies because those businesses, I think, are more likely to hold up even in the face of a weaker economy simply because there's pressure on all the fossil fuels. We simply haven't seen investment in those sectors, and recovery from Covid, people going back to driving and flying around the world. They've have seen demand for those products picking up. 

If we look at the global part of our markets, you have quite a few companies in South Africa. Listen, South Africa, the global nature - your Naspers, Prosus, Richemont,  Bidcorp, and the like. Those companies all have their own little stories depending on how they're affected by the global story. Locally, it's really sector by sector. And there are some parts of the economy that you'd expect to do reasonably well, simply because you've got a different story locally. So, we've got a reasonable story on the construction side locally, we're building new sustainable energy plants, we're building more roads and the like, and that should help, as an example, support the construction companies. 

So, you really have to break it up to see exactly how your businesses can be affected. Another big part of our market are financials. And those companies are the banks and insurance, they're still recovering from Covid. And they're in a pretty good position. They're telling us that the customers are in a good position, that people are starting to borrow money again. So, they should be okay - reasonably okay in a tough environment. 

Bruce Whitfield  03:30

Ja, and the thing to do is really to keep perspective on the huge amount of bad news that is around all the time in investment markets. It is being able to zoom out and get that perspective, rather than simply looking at, you know, a global trend and assuming that, you know, all things play out in exactly the same way in every single market in the world. That simply isn't the case, is it?

Arthur Karas  03:54

That's absolutely correct. I mean, one of the biggest drivers of the global economy is what's happening in China. China's in a slightly different phase than the rest of the world economy. They're a little bit further ahead. Their economy is weak, not strong. So, US strong, a large part of the world will be strong, because China has been quite weak. Their interest rate cycle is also in a different stage. So, they have got scope to actually cut interest rates, and help support their economy that way. 

So, if we see that happening in China, that creates quite a big counterbalance to what's happening in the rest of the world. They are still seeing inflation. I think we're all seeing that. But there is scope for them to cut rates and support their economy that way. They've also been very heavy-handed in all this regulation that they've been piling on to the tech sector, and how they're dealing with Covid. If that were to ease, it would definitely be a boost to the Chinese economy.

Bruce Whitfield  04:47

And again, because of our alignments, we could get a benefit from that.

Arthur Karas  04:52

We could. That would be - that would come through in a number of different ways. On the commodity side, on the internet, play through Naspers, Prosus; on the luxury goods sales through Richemont. So, definitely, a strong China has a lot of positive impact for South Africa.

Bruce Whitfield  05:10

Arthur Karas, thank you, Portfolio Manager at the Old Mutual Investment Group, our market commentator this evening.

The market at the start of a new week
What is the outlook for the JSE and investments on local markets?
The impact on commodity companies
A different part of the commodity complex – energy
Looking at the global part of our market, as well as how South African companies are affected sector by sector locally
The importance of not assuming global trends play out the same way in each market, and what’s happening in China