WELCOME - PSG€¦ · Trade war Having a big impact on prevailing market sentiment...
65
WELCOME Event partners
Transcript of WELCOME - PSG€¦ · Trade war Having a big impact on prevailing market sentiment...
WELCOME
Event partners
ALLAN GRAY
Jacques Plaut
GLACIER INTERNATIONAL
Andrew Brotchie
G L A C I E R I N T E R N AT I O N A L
A N D R E W B R O T C H I E
M D | G L A C I E R I N T E R N A T I O N A L
GLOBAL
COLLECTION
PLAN
GLOBAL
INVESTMENT
PLAN
GLOBAL
LIFE
PLAN
PORTFOLIOS CUSTODIANS
STRUCTURED
NOTES
INTERNATIONAL
MARKETS
G L O B A L
C O L L E C T I O N
P L A N
Admin & reporting
G L O B A L
L I F E
P L A N
Financial planning benefits
Estate Duty
Probate
Tax
Insolvency protection
Trusts
G L O B A L
I N V E S T M E N T
P L A N
Companies
Tax
Implications
Winding up
offshore
Estates
Flexibility
GOING ALONE BENEFITS OF USING A WRAPPER
Calculations / filing returns
Estate Duty / IHT
Multiple separate accounts
Portfolio changes over time can
be cumbersome
Tax calculated and administered within wrapper
Tax efficiency CGT: 12% vs 18%
Estate Duty
No offshore estate
No executor fees
All investments
held within same
Plan
Funds
Models
Share Portfolios
Time + Cost
T R U S T S
STRUCTURING IS VERY IMPORTANT
THANK YOU
G L A C I E R I N T E R N AT I O N A L
I S A D I V I S I O N O F S A N L A M
L I F E I N S U R A N C E
L I M I T E D LT D .
A member of the Sanlam Group
Private Bag X5, Tyger Valley 7536
Email: [email protected]
Tel +27 (0)21 917 9333 www.glacierinternational.com
Reg No 1998/021121/06
Licensed Financial Services Provider
MOMENTUM
Mike Adsetts
Where to now, asset classes?Mike Adsetts, Deputy Chief Investment Officer
21 November 2019
Improvements in financial adviceEquities and credit most at risk
➔ sharp equity drawdowns
typical around recessions ➔
US bonds a recession safe
haven ➔ but can recession be
avoided?
Rising recession probability
High volatility likely Few investments cheap compared
to history
Global equities compared to bonds
Flatter yield curve and more
activity from Tweeter Trump
Bonds already priced for
recession, but not equities ➔
equities look cheaper than
bonds against own history
0%
20%
40%
60%
80%
100%
Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
Citi Rates Strategy Machine Learning AlgorithmPredicted and actual probability of a recession within 12 months
Actual Predicted
Source: Citi
The argument for de-risking ➔ global recessionMeaningful recession risk
Start of US
upcycle
Date of 10-2Y curve
inversion
Date of S&P500
peak
Start of US
recession
# of months
btw. curve
inversion & SPX peak
# of months btw. SPX peak &
recession
# of months
btw. curve
inversion&
recession
% of cycle when curve
inverts
% of cycle when SPX
peaks
Perf btw. curve
inversion & SPX peak
Mar-61 Dec-67 Nov-68 Dec-69 11 13 24 77% 88% 12%
Dec-70 Mar-73 Sep-73 Nov-73 6 2 8 77% 94% -3%
Apr-75 Aug-78 Jan-80 Jan-80 17 0 17 70% 100% 11%
Jul-80 Sep-80 Nov-80 Jul-81 2 8 10 17% 33% 12%
Dec-82 Dec-88 Jun-90 Jul-90 18 1 19 79% 99% 29%
Apr-91 Feb-00 Aug-00 Mar-01 6 7 13 89% 94% 11%
Dec-01 Aug-06 Oct-07 Dec-07 14 2 16 78% 97% 19%
Average 11 5 16 70% 86% 13%
It ain’t over when the yield curve canary singsEquities can still go higher in the interim
Source: Barclays
US equity peak: Jul-20?
US recession:Dec-20?
-1
-0,5
0
0,5
1
1,5
2
2,5
EM BoJ ECB Fed
Can renewed policy stimulus avoid recession?Growth support from QE comeback
Source: Citi
SNB
BoE
Total CB purchases
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
USD tn
Improvements in financial advice
History points to strong future
returns ➔ the shorter the
history, the cheaper SA
equities’ forward P/Es look
Poor five-year returns
Equity returns not sensitive to SA
economic growth
Effect of potential US recession
SA equities
Similar returns in
low-growth and
high-growth periods
US recessions don’t matter for
equity returns in the long run
(more than three years)➔ but
be cautious of SA (and US)
equities around onset of
US recession
SA equity returns not very sensitive to economic growthOnly median returns higher in high-growth periods than low-growth periods
Source: Iress, Momentum Investments
Alsi annualised index returns during low and high GDP periods
GDP <= 1.5%
Average 21%
Median 13%
GDP >= 4%
Average 20%
Median 23%
Cautious of equities around onset of US recessionUS recessions don’t matter for equity returns in the long run (three years+)
-10
10
30
50
70
-12
m
-6m
-3m
+3m
+6m
+12
m
+24
m
+36
m
+60
m
No. of months before or after onset of US recession
Median percentage change in equity market for the past eight US recessions (around onset of US recession)
S&P 500 All Share
Source: Iress, Momentum Investments
Improvements in financial adviceEven more pertinent as global
stock of negative-yielding debt
rises ➔ unlike in DM,
meaningfully positive real
yields available in EM
Global ‘hunt for yield’ supports bonds
SA real bond yield attractive
SA real cash yield at historical average
SA bonds and cash
SA real yield attractive relative
to DM, within EM and relative
to their own history
Provides attractive relative
risk-adjusted returns
Improvements in financial adviceCheapest in 10 years vs bonds
➔ good returns expected from
low base even at
below-consensus distribution
growth assumption (negative
5% real) and no rerating
Lots of bad news discounted
Tail-risk bear case
SA listed property
To get negative returns ➔ have
to assume DY relative to bonds
at largest discount in 15 years
during GFC, negative 7% real
distribution growth and 9%
bond yield
Conclusions …1
• SA asset classes > global asset classes
• Better valuations and some rand appreciation
• Global bonds > equities
• Rising recession probability ➔ bonds already priced for recession, but not equities or credit
• Risk is that US recession is avoided and growth surprises positively
• Rising volatility likely
• SA equities (OW, with protection)
• SA shares have performed poorly for 5 years ➔ history points to strong future returns
• The shorter the history, the cheaper SA equities’ forward P/Es look
• Be cautious of SA (and US) equities around onset of US recession
Conclusions …2
• SA nominal bonds (OW)
• ‘Hunt for yield’ more pertinent as global stock of negative-yielding debt rises
• Unlike in DM, meaningfully positive real yields available in EM
• SA real yields attractive within EM and relative to their own history
• ILBs (UW)
• Break-evens to expand with rising inflation until early 2020, but returns unattractive vs nominal bonds
• Cash (OW)
• Current SA real cash yields have fallen to historical average ➔ but provides attractive relative risk-adjusted returns
• SA listed property (N)
• Lots of bad news already discounted
Thank you
OLD MUTUAL
Siboniso Nxumalo
ARE SA EQUITIES CHEAP?PSG Northcliff
Siboniso Nxumalo
“Fear grows in darkness;
if you think there's a
bogeyman around, turn on
the light.” Dorothy Thompson
IN 2016 MOODYS DOWNGRADED BRAZIL TO JUNK
80
100
120
140
160
180
200
220
240
260
H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 2018 H1 2019 H2 2019
(INDEX) MSCI South Africa - Price
(INDEX) MSCI Brazil - Price
30
BRAZIL’S DOWNGRADE WAS GREAT FOR RETURNS
Source: Factset
Growth of $100 invested when Brazil was downgraded in 2016 vs $100 invested in Sa
210.52
122.10
31
MOODY’S DOWNGRADE IS IN THE PRICE
Source: RMB Morgan Stanley
“Junk Status”
Brazil’s 10 year
yields are lower
than SA’s
32
INVESTING IN SA IS LOOKING RELATIVELY ATTRACTIVE?
Source: Factset as at 19 November 2019
6
8
10
12
14
16
18
20
Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18
MSCI South Africa - PE - NTM
MSCI Brazil - Price
S&P 500 - Price
12.91
Monthly
High: 17.59 Low: 10.05 Chg: 4.02%
17.71
12.42
Old Mutual Investment Group (Pty) Ltd is a Licensed Financial Services Provider
THANK YOU
PSG ASSET MANAGEMENT
David Watson
Copyright © PSG
PSG Wealth Northcliff
November 2019
36Copyright © PSG
37
Copyright © PSG
89%
80%
75%
69%68%
65%61%
44%
30%
40%
50%
60%
70%
80%
90%
100%
South Africa Hong Kong Japan UK Australia Brazil Europe (ex-UK) United States
% of companies in a bear market (vs 5 year high) (USD)
Source: PSG Asset Management; Bloomberg data as of 3 October 2019; Index per country: South Africa (JSE All-Share), Japan (Topix 1000),
UK (FTSE 100), Hong Kong (Hang Seng), Australia (S&P/ASX 200), Brazil (Bovespa), Europe-ex UK (Euro Stoxx 600 (ex-UK)), United States (S&P 500)
Majority of stocks already in a bear marketIn US Dollars
38
Copyright © PSG
0
10
20
30
40
50
60
70
80
90
100
19
80
/03
/01
19
81
/03
/01
19
82
/03
/01
19
83
/03
/01
19
84
/03
/01
19
85
/03
/01
19
86
/03
/01
19
87
/03
/01
19
88
/03
/01
19
89
/03
/01
19
90
/03
/01
19
91
/03
/01
19
92
/03
/01
19
93
/03
/01
19
94
/03
/01
19
95
/03
/01
19
96
/03
/01
19
97
/03
/01
19
98
/03
/01
19
99
/03
/01
20
00
/03
/01
20
01
/03
/01
20
02
/03
/01
20
03
/03
/01
20
04
/03
/01
20
05
/03
/01
20
06
/03
/01
20
07
/03
/01
20
08
/03
/01
20
09
/03
/01
20
10
/03
/01
20
11
/03
/01
20
12
/03
/01
20
13
/03
/01
20
14
/03
/01
20
15
/03
/01
20
16
/03
/01
20
17
/03
/01
20
18
/03
/01
20
19
/03
/01
BER South African Composite Business Confidence
RubiconChris Hani Asian crisis
GFC
Source: SACCI, iNet
The big picture view: domestic sentimentLittle sign of optimism
Now
June 2019
39
40Copyright © PSG
EskomFailing municipalitiesEmigrationCorruptionNo confidenceNo growth
Credible SARBInflation under controlStrong National TreasuryHealthy banking systemHealthy govt maturitiesLimited foreign debt
Asset prices are suggesting there is no
balance
Current Narrative Not discussed as much
Domestic environment is challenged
41
Copyright © PSG
SA Inc; 49%
Rand Hedge; 19%
Offshore; 32%
September 2019
Diversification: PSG Equity FundNot an all in bet on SA Inc.
42
Copyright © PSG
Incremental improvement in sentiment can be powerful
Catalysts are rarely obvious
Springboks lifting the Rugby World Cup trophy with Ramaphosa
#strongertogether
Copyright © PSG
PSG Asset Management (Pty) Ltd is an authorised financial services provider. FSP 29524
44
Disclaimer
Copyright © PSG
PSG WEALTH
Adriaan Pask
PSG Wealth
Adriaan Pask, PhD
Managing executive PSG Multi-Management
Chief Investment Officer PSG Wealth
Page 47
Contents
EconomicRates, currencies, trade wars,
and negative yieldsE
PoliticalRamaphosa project, Policy
uncertainty P
MarketValuations, Opportunities,
RisksM
Q&A ?
Uncertainty is rife
Market uncertainty has escalated on the back of greater economic and
political uncertainty.
SA is experiencing the poorest economic conditions in decades, but
uncertainty is also growing around the US, as the economic conditions
there seem very much late cycle.
Additional pressure through policy uncertainty both domestically
(various reforms) and abroad (Trade wars & Brexit).
Page 48
01 Context
Page 49
Global Economic Policy uncertainty
Source.Policyuncertainty.com
Page 50
Trade war
Trade Policy uncertainty index
Source.Policyuncertainty.com
Page 51
Trade war
Having a big impact on prevailing market sentiment
Source.Policyuncertainty.com
Page 52
Where are we in the international and local rate cycle?
Local – SARB vs Market vs Model
Page 53
02 Consequences
Page 54
Dollar strength
Rand/USD Exchange Rate - Spot price vs PPP
Page 55
Dollar strength
-27.00%
-38.48%
-33.06%
-13.64%
-13.29%Chinese Yuan vs US$
Rand vs US$
Brazilian Real vs US$
Russian Ruble vs US$
Indian Rupee vs US$
US Dollar Against BRICS Countries - 5-Years to End Oct-19
Page 56
Dollar strength
Euro/USD Exchange Rate - Spot price vs PPP
Page 57
Dollar strength
GBP/USD Exchange Rate - Spot price vs PPP
Page 58
Negative yields
Page 59
03 Opportunities
Page 60
Developed vs Emerging
Month YTD 12-Month 2-Years (Ann) 3-Years (Ann) 5-Years (Ann)
MSCI Emerging ($) 4.09% -0.76% 9.00% -3.51% 4.81% 0.50%
MSCI World ($) 2.45% 10.11% 10.46% 4.72% 9.72% 5.51%
FTSE/JSE All Share $ 3.19% -8.57% 5.42% -5.41% -0.17% -3.69%
Page 61
Trade war
Potential impact peaking?
Page 62
SA yields
SA looking attractive for all the wrong reasons- but that is how investing works
-2
-1
0
1
2
3
4
5
6
7
8
Nov-0
0
No
v-0
1
No
v-0
2
No
v-0
3
No
v-0
4
No
v-0
5
No
v-0
6
No
v-0
7
No
v-0
8
No
v-0
9
No
v-1
0
No
v-1
1
No
v-1
2
No
v-1
3
No
v-1
4
No
v-1
5
No
v-1
6
No
v-1
7
No
v-1
8
Real Yield
3
6
9
12
15
No
v-0
0
No
v-0
1
No
v-0
2
No
v-0
3
No
v-0
4
No
v-0
5
No
v-0
6
Nov-0
7
No
v-0
8
No
v-0
9
No
v-1
0
No
v-1
1
No
v-1
2
No
v-1
3
No
v-1
4
No
v-1
5
No
v-1
6
No
v-1
7
No
v-1
8
SA 20Y Bond SA Expected Inflation
Page 63
Ramaphosa project getting traction?
Sub heading
Page 64
Market levels
JSE ALSI offering appealing asymmetrical outcomes
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1,0 1,5 2,0 2,5 3,0 3,5
Su
bs
eq
ue
nt
5 y
ear
retu
rn (
TR
) R
EA
L
Price to Book
current1980's1990's2000's2010's
