Old Mutual: SA Inc. assets undervalued

South African assets returned negative real returns in the first half of the year as the country faced its worst power shortages in history. This challenging environment has raised questions about the prospects for the second half, especially after local markets were outperformed by global markets. Izaak Odendal, Investment Strategist at Old Mutual Wealth, shed light on the current state of the global investment environment in a recent interview with CNBC Africa. Odendal highlighted the strong performance of global equities, particularly in the U.S., where a resilient economy and increased expectations of a possible soft landing have driven the market. However, he noted the looming impact of sharp interest rate increases in the U.S., which could affect the economy in the second half of the year. Another surprise has been the weakness in China, contrary to initial optimism at the start of the year. Odendal emphasized the challenges of predicting the impact of artificial intelligence (AI) on the economy and cautioned against overhyping the technology's immediate benefits. He suggested a longer-term perspective on AI's influence on daily life and business operations. Despite uncertainties in the global market, Odendal expressed cautious optimism for South Africa's economic prospects in the second half of the year. He highlighted improvements in the country's power sector, with investments in solar and battery technology offering hope for reduced load shedding. The recent stabilization of ESCOM's power stations and manageable household debt burdens indicated a more realistic economic picture for South Africa. This positive outlook for South Africa, coupled with the relatively cheap valuation of local assets, encouraged investors not to overlook South African exposure in their portfolios. Odendal advised reevaluating the balance between equities, bonds, and other asset classes in light of the changing global investment landscape. While South African assets are perceived as undervalued, the focus on diversification and exploring opportunities beyond the U.S. market remains crucial for investors seeking long-term growth.