Navigating Global Markets: Insights from Alexforbes Asset Allocation Head

Now we have seen US treasuries steady in the wake of Trumps temporary stay of relief from higher reciprocal tariffs. The world′s largest bond market this weeks suffering huge blows from aggressive investor selling reportedly to cover loses elsewhere in the wake of the tariff uncertainty and also as the narrative of US market exceptionalism has come to question. But to reflect on its asset allocation strategy amid the current uncertainty, I′m joined by Mandisa Zavala, Head of Asset Allocation, Alexforbes. Mandisa, great to catch up with you. So I′m just reflecting on the kind of moves that we have seen in the past 24 hours because it′s been a huge reversal. Most things are looking pretty great right now. We′re coming from a session on Wall Street that is reportedly the best ever. We are looking at strong gains over in Asia despite the fact that China still remains in the naughty corner according to the US. Europe also posting strong gains as well as what we are seeing here. I suppose as we are embarking on the second quarter right now, Mandisa, how have recent developments just informed or how are they informing your asset allocation strategy and is it any different from what you did as Alexforbes in the first quarter? Thank you for that. It 100% is different. I think we have to put it in context. When we started off the year, the consensus view was that we were likely going to be seeing an environment that was probably overwhelmed with US exceptionalism. The main reason for that was because we assumed that President Trump would in essence speak about tariffs more than the implementation would be. So he would announce these tariffs and then kind of retract back on them. We wouldn't necessarily see some of them play into effect. We had no idea that it would be as disastrous as it has been in the last couple of months. I think markets have had to rattle with that and especially with views as to what that means for global growth. The consensus is that global growth is definitely going to be hammered because you are not only seeing tariffs coming out of the US, but you're also seeing retaliatory tariffs coming in from various regions. And that obviously in a trade war, the common saying is that no one wins under a trade war. So we've also had to look at that and say, OK, based on what we're seeing, I think it's important to take into account that it's no longer going to be a US strong year. There are some regions that are definitely starting to come to the fore, like Europe and even, you know, although China's in the naughty corner, there are some things that are happening from a sectoral perspective that are positive there, but definitely doesn't seem to be a great year for the US given the nature and the extent of the tariffs. I mean, now we were sitting 120 towards China and 80 percent back. I think that was the last word that I got. That might be different. But nonetheless, those have considerable effects on growth and investor sentiment. So with Trump now giving the relief of 90 days for all these regions or these 60 offenders that he had released on the list, you can see markets are rallying ahead of that. And I think everyone is just trying to take as any good news is becoming, you know, a spur for sentiment, good sentiment, I guess, on Wall Street and different markets alike. But what if the current good news becomes the baseline? Mandison, I know that it's pretty difficult to price that in right now, but I'm sure you are thinking about that scenario because we're told now, as quoted in The Art of the Deal, he starts off aggressive and then afterwards he comes to the table to negotiate. So we know that he wants a lot more investments over in the US. He wants the manufacturing in the US. He wants jobs. We also know that, I mean, other than China and Europe in certain instances, a lot of countries have come across as wanting to engage more with Mr. Trump, particularly previously regarding his calculation as to how he exactly arrived at the reciprocal tariffs, which have now been paused. In the event, I wonder, that the 10 percent does become the baseline in terms of how we go forward after this 90 days. Does that change the picture? And I ask this because now if we look at what happened last night on Wall Street, particularly with the Mag-7, where the questions on exceptionalism have arisen the most, we apparently had, or they apparently had, 1.8 trillion US dollars in market value traded. Apparently that's a new record. So Nvidia and Apple and Tesla and Microsoft, it seems like they're back. Question is for how long. But in the event that what we are looking at is a completely different kind of hand, a softer hand from Mr. Trump, what does that do to your picture on MAGA, whether it's still exceptional, MEGA, whether it's still exceptional and ultimately global growth? So definitely, I mean, if we see the 10 percent and that becomes a base case, it still doesn't make, it doesn't create US exceptionalism because the underlying base case of US exceptionalism was that when you come to the table and you're negotiating with this economy that you've essentially said you would put a tariff on, they can then negotiate for whatever is good for your own economy. Now, that creates an environment where, you know, the one economy is like, OK, maybe we didn't get 20 percent, but we're still able to give the US 5 percent. And it's not as bad for the US. What is what has become clear in the last couple of months is that actually President Trump and his administration can actually take a lot more volatility than we had expected. And I mean, you know, now there is, you know, a bit of whispers across, you know, across the corridors that perhaps what has caused this pause in the 90 days has been because, you know, businesses on Wall Street have actually come through and said, you know, we're actually bleeding here. We think there needs to be a much more measured approach, et cetera. It obviously isn't one that perhaps signals a recession, because right now, under the 124 percent tariff rate and massive tariffs coming in from various places with these retaliatory tariffs, that was essentially creating the scenario that we're likely going to be seeing two negative quarters of growth in the US. But it definitely does signal a slowdown. I think that is that is definitely going to be something that is priced in. And I think the question then becomes, you know, with the Fed having a dual mandate of both growth and inflation, do they then start to concentrate more on growth? In essence, you know, they're going to lower interest rates or do they become worried about inflation where they don't lower interest rates and they pause? And that, in essence, has an effect on growth. And so all else equal, the pendulum is tipping towards the side of a lot more an environment that is a lot more stringent for the US than for the rest of the world. So so so then, I mean, if we simplify it, how how what does that mean for how you are slicing up the pie practically? I mean, you reflect on some good gains that we saw across emerging markets in the first quarter, including here in South Africa. We we we lost it a bit. We lost it. The oil share dipping below 80,000 for the first time this year. But it's it's back again. What are you doing with equities? What are you doing with bonds right now? Well, how are you thinking about the position of cash or any and any other alternative investments in your portfolio? We think cash has a role to play again because it does offer some protection. There are other things that you could use to protect yourself other than cash if you've got access to gold that tends to do extremely well under heavily volatile scenarios. I think the volatility is definitely going to continue. We're going to come to the end of this 90 days. The question will be asked again, what happens? Are we going through with this or do we backtrack? And the reality is that if he decides to go through with some of them and maybe especially South Africa being in the naughty list or being in Trump's crosshairs recently, you know, we have to take into account that there's a huge risk that, you know, he may still continue with these in this in this next 90 day. And that does mean a bit of a strategy that actually takes into account some healthy risk, being that, you know, South Africa does still have a lot of room to still rally. I think from a from a global equity perspective, there are some very good sectors. We're talking about bonds just recently. You're getting massive, very good dividend yields from bonds around eight point five percent on average that you're picking up from from from these different banks. And at the same time, you're also getting some good, you know, returns coming through from these bonds that had recently sold off but are coming back right now. If you do experience an environment with food inflation and fuel continue to come down, that is going to definitely help with keeping inflation in in in the right place. And that is essentially positive for bonds. So in essay, we would say equities, but being very critical on which sector you're going into bonds, we still think there's very good room to go into bonds given the starting yields that you're getting the ILBs or inflation linked bonds offer you a protection. If there is an inflation spike, you're picking up really good yields from inflation linkers and globally, you know, markets like Europe, European markets, but also very particular on the sectors, because a lot of the fiscal policy that's coming through is more defense focused and, of course, staying away, I think, at this current point from the US. If you were already in the US, you obviously need to kind of, you know, hold your hat there. But if you do get some returns, and you're able to make that up, we think it's prudent to take some of that rally out, because it's still going to remain a very uncertain and volatile environment. Even with Europe also potentially being in the firing line, I mean, I know probably talks are happening behind closed doors now. But Europe, prior to this announcement from Mr. Trump, had announced that it was ready to enact its retaliatory tariffs on the US, which come into effect next week. And I wonder, because he has said that, you know, Europe, they're treating us badly, you know, they've been very, very bad, they're ripping us off. And I wonder, in the event that that is not done in terms of a deal, just how much risk, essentially, you're pricing into a Europe and a US standoff by way of tariffs, and to what degree that upsets the growth picture, or perhaps the roaring back of Europe's largest economy right now, Germany, offsetting that mix. And also what people are saying that Europe is finding friends, in the words of Ursula von der Leyen herself, finding friends and looking at opportunity in the rest of the 87 percent of the market that is not traded with the US. I think that's a huge risk, because if you look at how Europe has been trading currently, if you're just the stock exchange now, it isn't taking into account a standoff with the US-Europe standoff. I don't know why that's the case. It could be that perhaps maybe the alliances go deeper than just, you know, what we were seeing on above board or just from face value, that perhaps if that was the case, it will ruin a lot more than what is expected. Of course, with the China-US apologies, we know that, you know, just in general, China was always going to be in the front of this tariff war. It was always going to be targeted. We know how Trump feels about China. So with the Europe scenario, if it does play out to look like a China-US, and now it becomes a Europe-US story, I think it is definitely going to be considerable because the stock exchange or the market is not taking into account some of those risks. Where there is a little bit of a cushion is that Europe does stand in a position where they can do quite a bit of fiscal stimulus. They can do quite a bit of things on the ground that work for them, whereas in the US, I think one of the things that have been criticized and that have been spoken about even within their own government is the fact that they've got very high debt levels. So the measure at which they could do on the ground, they've limited themselves to that because they want to get that debt down. And so one of the ways in which, you know, it might have worked where you reduce the debt without doing anything is to have the dollar, you know, decrease or the dollar lose value, which is what has been happening in essence. So I think to just answer your question, Fifi, it's a good one. Markets will definitely be, you know, whiplashed with that. It's not something that's expected, but I do think there's a lot more that Europe can do right now versus Trump. But this is not growth you're probably going to see this year. This is growth that's only going to start to come through into next year nonetheless. So the market is rallying ahead or front loading some of these ideas or the stimulus. OK, Mandisa, just also one last question, perhaps on equities when it does come to China specifically. So, I mean, it's a relief rally across the board. So counters that do have or are impacted by the China story rallying in unison with what we are seeing elsewhere, the likes of Richmond up almost 5 percent, NASPACs and the process group also gaining. But I would like to understand how you're looking at the China opportunity again, just circling back to the fact that now it's essentially a war between the world's two largest entities. I mean, it's a question is who gets hurt the most here. And in the event that things get out of hand or things, let's just say that things stay as they are, 125 percent, 84 percent. Would you still be topping up on China right now? So the China trade is one that is very specific, and that is more towards the sector that is seemingly very attractive right now, which is AI. I don't think that takes into account the rest of it. If you look at the composition of what makes up that sector, it's not firms that are driven by local dynamics. It's firms that are more driven by global dynamics because some of these companies may be listed in a particular stock exchange, but have participants or users in other economies. And so that's why I even said at the beginning, you need to be very cautious around the sectors that you're also accessing within China, because I do think that they're not out of the waters. Some of the rebuttals that we may get with regards to this is to say, but China has always been embarking on government reforms. They're doing certain things in the background. All of those things last year were geared towards bringing up the real estate market and it didn't necessarily work. And I think it's still going to, to some extent, be very difficult for them if they don't increase the level at which they're doing things, especially because consumer sentiment still remains very depressed. So on the global side, I think, yes, they can definitely find ways and reroutes. I think they've done that before in the past. It could definitely still work for them. But nonetheless, I think they are definitely a huge part of the sector that will still become impacted by the standoff, with the exception of some of these animal spirits that we're seeing coming through from the tech sector in particular and AI. That seems to be a lot more hedged out, I believe. In terms of animal spirits, then let's talk about the rattlesnake, that is the rant. So we have seen it recover some ground right now. But I'm just wondering what you're thinking in terms of where it goes from here. Earlier this week, we had a note from Investec and its chief economist was also looking at the fact that, yes, you've got external politics that are weighing on the currency, but we also have domestic politics in terms of the GNU. What are your thoughts here and what are you seeing for the currency? So I think that the recent GNU quarreling that we saw was not what the market had expected, especially at a time of massive volatility, which is why I think we have seen massive selloffs, not only in the rent, but also in bonds and asset classes that are linked to that. I think right now, where the rent stands, it does trade at very cheap levels. So all else equal, even when we do consider, I think we do have a bit of good news with regards to the GNU, they're still going to stay together. But that noise is maybe not going to go away. I think we're still going to see some tensions coming in whenever decisions need to be made. And that essentially is going to mean that going forward, markets become a lot more comfortable, not to say we're going to want to have these quarrelings, but it's going to be seen as this is how the relationship generally works. I think in terms of the rent, some of the things that are working for the currency to bring it back to a level that is not as weak as it is right now, definitely not calling 16 rand or even 17 rand at this point, but definitely towards perhaps maybe the 18 rand range are things like the terms of trade. I think we still have a healthy terms of trade. Gold still doing exceptionally well has actually worked for us. I think number two, being that the rand is very cheap and you also have very, very high yields on the bond side does make it very attractive for our foreigners. And if they come in, I think that's actually going to work well for the currency. And I think if you look in some of the fundamental things that that bond investors are looking for, because they tend to move the currency as well as equity investors, some of the things are the debt trajectory, even given the debacle that has happened within the GNU, the debt trajectory wasn't something that bond investors saw and wanted to run out of South Africa. They were happy that Treasury was prioritizing bringing debt back, even though I think the nature of it as people that live in South Africa was not something that was welcomed. I think so maybe there's a lot of other factors, but maybe to use those as the major arching ones, I would say right now you're probably expecting a bit of a pullback with where the rand is, some relative strength, but it's still going to continue to remain, you know, pressured. It does help also that the dollar is weakening. I think that probably is the biggest factor that should probably help the currency come back slightly. OK. Yeah, the reining in of debt or keeping debt stable at our expense, VAT and not adjusting the tax brackets for inflation. It's a very high one. But Mandisa, thanks so much for your time. We will leave it there. Always an absolute pleasure talking to you and learning from you about the market insights and how you guys at Alex Forbes are navigating through this mayhem. She is the head of asset allocation at the firm.

United States treasuries have steadied in the wake of Trumps temporary stay of relief from higher reciprocal tariffs. The world’s largest bond markets this weeks suffered huge blows from aggressive investor selling reportedly to cover loses elsewhere in the wake of the tariff uncertainty and as the narrative of US market exceptionalism waned. To reflect on its asset allocation strategy amid the current uncertainty, CNBC Africa is joined by Mandisa Zavala, Head of Asset Allocation, Alexforbes.

Alexforbes: Global investors bullish on South Africa

United States treasuries have steadied in the wake of Trumps temporary stay of relief from higher reciprocal tariffs. 

Alexforbes: Global investors bullish on South Africa

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Alexforbes: Global investors bullish on South Africa

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