Momentum’s 4th quarter outlook for global equities

Momentum Investments has recently published a report suggesting that equity markets may not have hit rock bottom yet in the ongoing bear market. According to the investment house, risky assets tend to bottom out during US recessions only after they start factoring in interest rate cuts, rather than before a recession actually sets in. Sanisha Packirisamy, the Economist at Momentum Investments, shed light on the current economic climate in a recent interview with CNBC Africa. The global macroeconomic environment is currently presenting challenges for global equities. Sales are under pressure, costs are inflationary due to high wage growth, and there's a looming margin pressure that could squeeze returns for global equities over the next 12 months. Packirisamy highlighted a study conducted by Momentum Investments on the performance of global equities during soft landings versus outright recessionary periods. The study found that during recessions, global equity drawdowns tend to be more severe than during economic slowdowns. Recent market trends have been turbulent, with three consecutive quarters of decline in US equities. Emerging markets, particularly Asia, have seen significant declines due to lockdowns in China. The EMEA region has also faced challenges linked to geopolitical tensions, like the Russia-Ukraine conflict. In South Africa, financial stocks took a hit mirroring the global downturn. Despite recent market volatility, Packirisamy remains cautious about the market's immediate prospects. She pointed to signs of inflation possibly peaking. Wage inflation's link to overall inflation has weakened compared to past decades, leading to a potential softening in inflation pressure. Additionally, supply chain disruptions appear to be easing, and pent-up pandemic savings are being depleted, reducing demand-led inflation risks. However, she noted that certain economies like the UK and the US still face inflationary pressures that could persist. The discussion on inflation naturally led to speculation about future interest rate decisions by major central banks. Packirisamy suggested that despite recent aggressive rate increases, monetary policies remain accommodative globally. With inflation far from target levels, she anticipates further rate hikes in the near term. As the focus shifts from inflation to growth, central banks are expected to carefully balance rate hikes to manage economic momentum. Packirisamy's growth forecast for South Africa is slightly above the South African Reserve Bank's estimates, projecting 2% growth for the current year. While consumer spending and exports have held up this year, elevated inflation, rising debt-service costs, high unemployment, and low consumer confidence pose significant headwinds. Looking ahead to next year, she anticipates a growth slowdown to around 1.5%. The global economic landscape presents a mixed outlook for South Africa's key export markets. While Europe and the UK face economic challenges, the US shows resilience with solid household and corporate balance sheets. Packirisamy advised investors to consider South African equities and bonds given their relatively attractive valuations compared to other emerging markets. She recommended an overweight position in South African bonds, neutrally weighting South African equities and properties, suggesting that the current environment favors fixed income investments.