AlexForbes Q1 asset allocation & valuation

In the world of finance and investment, navigating the ever-changing landscape of asset allocation requires a keen eye and a deep understanding of market dynamics. Mandisa Zavala, Head of Asset Allocation at AlexForbes, sheds light on the current market trends and provides valuable insights for investors looking to make informed decisions. The past month has seen negative returns for global bonds, driven by stickier inflation prints, resilient economic activity, and the US Federal Reserve backpedaling on its dovish tone. Locally, South Africa has faced challenges from a fixed income and risk asset perspective. Mandisa Zavala points out that the initial optimism at the beginning of the year has given way to a more cautious approach as the market adjusts to the Fed's statements. The risk environment has become less volatile, impacting asset classes like South African bonds. As South Africa enters an election period, volatility in the currency and asset classes is expected to increase. Despite foreign bond outflows, attractive yields are still drawing local investors. The global perspective, however, presents challenges as interest rates shift. The recent strength of the Rand is a positive indicator, with expectations of a better second half of the year. Commodities, especially gold, have performed well, benefitting South Africa as a major gold exporter. The appeal of gold as a hedge and geopolitical tensions are driving investor interest. Zavala anticipates continued support for gold in the short to medium term, with green commodities gaining momentum in the long run. Equities, currently trading at levels last seen in January, offer opportunities for investors. Despite split views on the market, fund managers are bullish on the JSC's performance by year-end. Valuations are attractive, both globally and in South Africa, presenting an opportunity for investors. Earnings revisions and a more positive outlook on issues like load shedding are contributing to the favorable sentiment. Zavala emphasizes the importance of a nuanced approach to asset allocation, considering various sectors and opportunities. With interest rates expected to remain high, investors must seek returns above the risk-free rate. Bonds remain an attractive option in the current scenario, while equities need to deliver competitive returns to justify their place in portfolios. In conclusion, Zavala underscores the complexity of managing portfolios in a higher-for-longer scenario, where investors seek CPI plus returns. As the market landscape evolves, staying adaptive and strategic in asset allocation will be key for investors looking to navigate the challenging yet promising terrain of the financial markets.