The global macroeconomic environment is treacherous at the moment. The shift to populism and the resultant risks have brought politics front and centre. This is inherently unpredictable. At the same time, extreme monetary policy action has de-emphasised the standard cycle. In this world, it is prudent to focus more on valuation (price) and to hold macro views lightly, while focusing on building portfolios that are well diversified.
Themes suffer in the wake of uncertainty – a heavier weighting on price
As part of our investment process, we develop a set of evolving themes that take the macroeconomic environment into consideration. The theme that influenced our latest portfolio construction is that the US will underperform and, as such, our portfolios are underweight US equities. This is based off very high profits, high valuations and a strong US dollar, making it difficult for things to improve. Globally, we expect a low return world, which will force money to search for yield in an environment of ultra-low global interest rates. This has the potential to support SA assets, which are offering better value.
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