Hello and welcome to Macro Pulse. In today’s episode, we will focus predominantly on South Africa. So African access has outperformed year to date with SA equities up 25%, South African bonds 13%, and the rand has appreciated about 9% against the US dollars. SA assets has been a defensive play in a very uncertain macro environment, and has outperformed many emerging markets and global markets.

We remain constructive on South African assets, but we recognize that the drivers of this performance that we had so far this year has been very thin. The market breadth has been thin, with the predominant performance coming from gold minus, platinum miners, Naspers and Prosus. So as we progress, we think over the next few quarters that leadership will change towards local sectors, retailers as well as banks and local industrials.

Why do we believe so? Well, first off, we think that the growth expectations, the consensus expectations for growth is still very low for 1% for 2025 and 1.5% for 2026. We think the growth momentum could surprise to the upside. Last week we had the second quarter GDP number come out at 0.8% quarter over quarter, surprising the market that was expecting a 0.6% quarter over quarter.

This was the best quater over nine quarters. And if you look at the split in where the growth has come from on the supply side, it has really been mining, manufacturing and trade that is contributed 0.2% towards growth. On the demand side, it has been household consumption that has been the key driver, with in particular discretionary spending, providing a lot of the support towards consumption.

Investment was weak. But even with investment where one has to distinguish between the public and the private sector. So while the public sector contracted, the private sector, investment actually rose over the quarter at close to about 6%. So looking forward, we think household consumption, consumption in general will continue to be robust, with investments starting to rise gradually over coming quarters.

If we look at some of the retail sales numbers and we had some earlier this week, real retail sales was up 5.8% year over year, again driven by discretionary spending, vehicle sales remained strong and even within net new vehicle sales, was up 22.5% year over year, with Chinese brands in particular making new record sales in the month of August.

And then on the credit front, we had still an acceleration in credit growth, and real credit growth is still positive. On the inflation front, we also got some positive news. We had the CPI numbers out this week and while core inflation remained at 3.1%, you know, in line with what the market was expecting, it was headline inflation that surprised to the downside.

The market was expecting a number to jump from 3.5 to 3.6%. And we got 3.3%. And if you look at the components, it was really fuel food in particular vegetables and meat. That surprise to the downside, inflation expectations are also moving down. So the BER released their second quarter inflation expectations also earlier this week. And we saw that people are now believing that inflation in two years time and the two year number is the one that the SARB is most interested in following, will come down from 4.5% to 4.2%.

So we see that the SARBs messaging around the 3% inflation target is starting to bare on fruit because of the credibility that’s ingrained within the SARB policy. And therefore we see inflation expectations falling. Now with inflation expectations falling, the oil price still low and the rand remain to trade at a robust or you know, appreciating base we think there is scope for the SARB to continue to cut interest rates to below 6% over the next year or two. We really think that the inflation target regime that’s changing is a significant economic reform that the country is undergoing, and that will bear benefits to consumers in the future? We believe that one of the reasons for the slow growth that we’ve had over the last few quarters has been because of a very tight policy setting, with the real policy rate at around 3.5%.

So while you had on the electricity front, a big improvement in terms of the electricity availability factor, which is now improved to about 70%, and that’s been driven by a sharp reduction in unplanned maintenance or brokerges it didn’t really have the effect on the economic growth just yet because of this tight policy setting, both from the policy side and fiscal policy side. But we believe it’s really the monopolies side that could move over the next few quarters. One more thing about inflation targeting is that we are still waiting for the National Treasury to officially make the announcement of the reduced target towards 3%. We believe that should come at the medium term budget because the new projections by National Treasury needs to include the 3% to make fiscal policy credible for the remainder of the year into next year.

We will have the medium term budget on the 12th of November, which is ten days before the G20 meeting that will be hosted in South Africa. We’ve heard that President Trump from the US won’t be attending the G20 meeting, that instead, Vice President Vance will be in attendance. However, for the medium term budget, we don’t expect any drama in the same scenes that we had earlier this year.

We think that there scope for a positive upward revision towards revenues. We see an improvement in SARBs efficiency tax compliance and also corporate income taxes can surprise to the upside as mining revenues are benefiting from the increased commodity prices.

We think that there is some scope for National Treasury to announce a reduction in bond issuance. However, National Treasury may might delay that announcement until February next year.

So we see that all these local dynamics is improving and that foreign bondholders are very much interested in our market. We had record inflows, daily inflows into our bond market, last week, to the magnitude of 25 billion of foreign inflows in one day. And early this week in the weekly bond auction, we saw that 90% of the auction was taken up by foreigners.

It’s not just the local dynamics that’s improving. We also see on the global front that there’s, increased appetite for emerging markets as the US is slowing, the job market is slowing, the dollar is weakening, there is appetite, for emerging market assets, including for South Africa. On that front, we had the Federal Reserve cutting interest rates by 25 basis points yesterday. Fed Chair Powell announced that they will be the new dot plots show that there will be another two cuts later this year. And that rates will fall to close to 3% by the end of next year. There was one dissenter and that was Stephen Marron, who is the new governor elected by the Senate this week, he had his first fed meeting and he voted for a 50 basis points cut. Remember, until recently, he was, an economic advisor to Trump. But Chair Powell didn’t push too much back against the markets pricing of rate cuts. Although he did say that this rate cut was one that could be seen as a risk management action. But we believe that the that the fed will continue to cut interest rates as the economy is slowing. We had a very weak non-farm payrolls, earlier in the month. And we believe there’s evidence that still shows that the labor market is, you know, on a continued weakening path.

One last word on China is that we’ve had very strong returns out of China. The equity markets continue to do very well despite some weaker economic growth. This expectations that, policymakers, makers will continue to ease policy. And with this strength in the equity market, one has to ask the question, are we seeing the reemergence of the Chinese animal spirits starting to rise again now with policy support more tilted towards consumption and with a real crackdown on excessive capacity and overcapacity and, you know, excessive competition. We do believe that the scope for consumer assets in China to continue to do well.

That’s all for this week. Thank you.

Karena
Everyone, and welcome back to Market Insights, a series where we delve into interesting topics affecting equity markets. Today I have Cornelius and Jacques with me. Thank you guys for being here. So maybe let’s spend some time looking at our emerging market exposure. Over the last 18 months, we’ve seen quite the rally coming out of China, but we’ve actually sold down some of our exposure in the funds.

Jacques
So we do still remain quite constructive on the China consumption theme and especially the e-commerce players. JD.com, Baba and OTA and Tencent reported very strong results over the past quarter, specifically from the core China retail businesses. But what’s driven the change in our positioning was Jericho maintaining the free delivery market.

They’ve been very successful over the past quarter, having gone from essentially no more Kashi to more than 50% market share, but this has come at quite a big cost. We just invested more than 10 billion Remembe into their food delivery business through subsidizing products, but also having a very low take rate. And might one responded through their own investments to the point where both JD and Meituan was actually loss making on an operating profit level in the past quarter.

Baba’s e-commerce business also reported a very strong result, with a local e-commerce business. Margin is under pressure from the instant delivery that they’ve entered. But it’s been offset by the continuing improvement in the in the international business and very strong results from the cloud business that’s grown 26% year over year. Baba is now investing quite aggressively into the cloud infrastructure business, and they’ve reiterated their three year CapEx guidance of 380 billion renminbi to build out the cloud business.

So from a positioning perspective, which would stop a Baba position as they continue to invest into this cloud business, and JD and Meituan, although it seems like competition has beat the next set of results, will still be under a lot of pressure as they continue to invest over the short term.

Karena
Brilliant. Thank you. So, given your reduction in Chinese exposure over the last few months, what are you seeing in the rest of the emerging market space?

Cornelius
We remain broadly constructive on emerging markets. We still, have a overweight position in countries within our global equity fund and within the emerging market fund, we found many opportunities to redeploy capital. So we also, did very well on our South Korea position with the political change in the value up program, with all the stocks that have rallied, which we’ve discussed in the past.

So we’ve actually taking money from both China and Korea and redeploying it into countries with the best valuations. Where we are seeing monetary policy is close to a peak in terms of tightness. So there’s many countries like Brazil, South Africa, Kazakhstan and Turkey with very high real interest rates, which makes it very difficult for for equities to perform well.

And we are seeing inflation coming down in all of those countries except, Kazakhstan. Inflation remains quite sticky. But there’s a lot of scope for reserve banks to cut interest rates in those countries to become. And they’ll still be competitive with the likes of the US. So as real rates comes down in those countries, the equity ratings, should go up.

The consumers will have more money in their wallet, which will drive consumption and which will drive earnings for companies, in those countries. So we are definitely not short of ideas in our fund.

Karena
Brilliant. Thank you. I’m really looking forward to seeing how these themes play out over the next few months. Just a reminder to the audience to join us for our Equity Explorer series, a live webinar where last month we looked at Kazakhstan. We delved into Caspi and Halik, and this month we’ll look at the payments space. We will look at Visa and Mastercard. Looking forward to seeing you there. Thanks so much.

Hello and welcome to Macro Pulse. Over the last few months we saw market volatility dropped. But as Europeans are getting back from the holidays, we now think that volatility will rise over the rest of the year. And there are some events out today that can still alter market dynamics. First of all, on Friday we will have the nonfarm payrolls report.

And after last month’s very weak number and a revision made to prior months, the market will be keen to focus to see how weak the labor market really is and if that entails the fed potentially having to cut rates more than currently anticipated. We’ll also get the South African Reserve Bank on the 18th of September. Market is not expecting any moves or any rate cuts from that meeting because, as you saw recently, inflation started to rise.

But the rate that rise has been more due to an increase in utility and also food prices. In our view, we saw that food prices could be peaking soon as the supply of meat and vegetables are improving, and that should set the stage for inflation to potentially start falling again into next year and providing scope for the central bank to cut rates to below 6% over the next 18 months.

Then we also have the Bank of England on the same day. Now inflation has also been rising in the UK, which means that the central bank will likely hold off on moving rates down, and that is by the very weak economic backdrop. And if we look at the policy set up, monetary policy with interest rates at 4% remains tight.

And on the fiscal side, we will have the autumn budget, at the end of October. And from that budget, we could potentially see further tightening of conditions as well. As the Chancellor is looking at potentially, raising taxes to cut some spending. Other central bank meetings is that of the European Central Bank, on the 11th of September. And for the ECB, we could say that they are done cutting interest rates. We’ll have to see where inflation ultimately settles. But it does look like with inflation now at below or at 2%, that inflation will be sitting around these ranges. And economic activity seems to be steadily rising. So a lot of central bank action. So happening this month.

If we then go on to geopolitics and politics, next week on the 8th of September will have a vote of no confidence in the French Prime Minister, Francois Barrow. He proposed a budget, which he failed to pass. The reason for that is because it’s entails some spending cuts. Which is unpopular. It includes, for instance, you know, scrapping to public holidays and also scrapping, public hiring.

And so the real emphasis to try and reduce the budget deficit is failing. And that is putting pressure on the fiscus, in France. And we saw, you know, French government bond yields starting to rise now to a level similar to that of Italy. Then if we go to other meetings that we still waiting for, is the meeting between Putin, Zelinski and Trump to reach some sort of a peace deal, although we think the ultimate outcome would be that of a ceasefire, given the fact that the parties are so far away in terms of, security guarantees and land.

And so if we do get a meeting in the next few months, though, you know, it may rather be that we get a ceasefire, then we also look still at a meeting between Jinping and Trump to come out potentially in November or October of this year. And the market is expecting some sort of, an attempt to reach a trade deal between China and the US.

And so the markets will be keen to focus on that as well. Then in China itself, we’ll have the Chinese Communist Party having the fourth penalty session. And with that, the next five year plan. So proposals for growth, economic growth between 2026 and 2030 will be discussed at this meeting, which will also be, around about the end of October.

What we will be watching from that meeting is any allusion to potential further, easing measures, but also, more details around the anti involution campaign. Now, the anti involution campaign is really a campaign to try and reduce excessive competition and reduce capacity, in the economy over capacity in the economy and in that way also try to stimulate, domestic demand and increase corporate profits.

So a key event to watch as well. So as you can see, a lot of events still on the calendar. But let’s look at some more recent events and the impact of those. So if you remember in May the International Court of Trade, decided that Trump’s tariffs is reciprocal tariffs. They ruled that those are unlawful and that the president doesn’t have unilateral authority to impose tariffs on all countries around the world.

Well, that, ruling was appealed. And the appeals court in the US has decided last week that. Yes, they also deemed that the, emergency tariffs that Trump imposed, is unlawful. However, it delayed its implementation of its ruling until the 14th of October to give the president and the government a chance to appeal that at this US Supreme Court.

And so the Supreme Court now has to decide to take on this case or not. And if they do take on this case, it could mean that we could get a ruling and sometime in the middle of next year. Regardless, given the fact that the Supreme Court has got a six out of nine conservative bias, it’s very likely that the ruling would be in favor of the president, and that the tariffs would remain in place.

And even if they do rule against the president, there are many other avenues that the Trump administration can look at to stall, impose tariffs on countries around the world. The other big news has been a growing concern of fed independence and that fed independence are being compromised. So last week, Lisa Cook, who is a Federal Reserve board, governor, was fired by President Trump, due to allegations of mortgage fraud.

But what is really behind this is an attempt by the Trump administration to get influence on the board of governors. Now, the board of governors consists of seven members, and, two of them has been appointed by Trump during his first term. In effect, three has been appointed by Trump during his first term, the one being, Jerome Powell.

The other two has recently voted in favor of rate cuts. So one can assume that these, are more aligned towards Trump’s view. Apart from these two seats, more recently, Adriana Kugler was as resigned, and her position has now been filled by one of Trump’s economic advisers, Stephen Marron. So with three seats, and potentially being able to take Lisa Cook’s seat, as she been fired, Trump could end up having four seats, or having influence over four seats at the board of governors.

Now. That means a majority out of seven. And it’s really the board of governors that also appoints the regional fed presidents. And that election comes up in February next year. And so the ultimate aim is here to increase influence, over the fed. Now the markets are becoming concerned about this. And you can see that. And also the way that the gold price has risen more recently.

So there are two things that stand out for me in terms of market dynamics. More recently, the fact that the gold prices, broken out of its most recent range, we saw gold price rise to 3500 again, as people become concerned about, not only, you know, fed independence, but also fiscal concerns. I’ve mentioned, the situation in France and in the UK at the moment, and central banks continue to diversify away from the US dollar, into into other assets, including gold bond yields have also not being the safe haven as it’s supposed to be.

And that has been the second thing that stood out for me is that we see a continuous rise in bond yields and in particular long bond yields. So we do use steepening in the curve with short bond yields coming down. But as really the long bond yields the 30 year bond yields that’s rising across the world. And the reasons for that is yes concerns around potentially inflation.

As also concerns around fiscal dynamics. And the fact that they are acting as a safe haven just hasn’t played out the way, it’s supposed to. There’s also still increased issuance and supply, from many developed market economies, and the demand just isn’t there to take up that supply now. For now, the equity markets have, somewhat ignored this dynamic.

But if we are seeing a weaker economic backdrop with continued rise in bond yields, at some point the equity market will take heed of these signals. And may have to, to price in these additional risks. That’s all for this week. Thank you.

Karena
Hello everyone, and welcome back to Market Insights, a series where we delve into interesting topics affecting equity markets. Today I have Cornelius and Jacques joining me. Thank you guys for being here again. So Cornelius, the last time we discussed how the US tech stocks have dominated S&P 500 returns, primarily driven by earnings growth. Could you perhaps shed some colour on this.

Cornelius
Yes. So these are amazing companies which are really aggressively reinvesting into their businesses. So if you look at the amount of capital expenditures, percentage of revenues that has doubled since 2015, it has gone from 8% to 15% of revenues while keeping the research and development intensity close to the 15% level. And if we look at the amount of CapEx and R&D in absolute terms, these US tech giants are now actually outspending other capital intensive sectors like oil with Shell and Aramco and Exxon features as well as pharmaceuticals with Merck and Roche and those type of companies are spending a lot of money as well as auto manufacturers like Volkswagen.

So these companies are really investing in their business, and we are seeing a growing contribution from the cloud businesses for companies like Amazon, Microsoft as well as alphabet, and it’s becoming a significant contributor to them because their cloud businesses have tripled over the last six years. And Nvidia is, of course, been a big beneficiary of all this CapEx spend. And if you look at the total earnings growth for these companies, it has continued to grow at a rapid pace. And we’ve recently seen alphabet outstripping Microsoft and Apple in terms of absolute profitability. So the historic growth has been very impressive.

These companies have generated a lot of cash flows and then are reinvesting it into the businesses. If you think about, what multiples you pay for, it’s interesting that the capital intensity depresses the free cash conversion. So arguably the price earnings ratios don’t tell the full story and they’re much more expensive these days on a free cash flow multiple, but on the flip side, you can argue that R&D mustn’t be experienced fully in a given year.

So if you capitalise a portion of that again your price earnings multiples probably overstated. So you have these two different factors that you need to consider. But the fact that these businesses have a lot of growth runway is sure.

Karena
That’s really interesting, thank you. So Cornelius touched on valuations, how expensive are these stocks versus history and the rest of the market?

Jacques
So looking at the valuations of these businesses specifically the price earnings ratios, I think they should be seen in the context of the superior historic earnings growth that these businesses have delivered, but also their future prospects, right. Companies like Google, for example, has derated from more than 20 at the beginning of the year to a 18 and a half forward at the moment, or Amazon wing for more than 32 or 26 forward.

We also don’t think comparisons to the dotcom bubble and the nifty 50 is justified, firstly because the business models is completely different, but also these businesses are now only trading at a 20% or premium to the market compared to the dotcom bubble, where they traded at more than 50 multiples and 100% premium to the market. So therefor think that the valuations of these businesses are reasonable, but we do remain overweight some of the names and underweight others. And we’ve used the volatility provided by Liberation Day in April with a broad selloff in the market to take our US underweight technology business from -7% to equal weight. They’ve rallied quite aggressively now and we’ve used some of this rewriting to take profits.

Karena
Amazing. Thank you so much for those insights on the current positioning in the portfolio Jacques. To the audience, thank you so much for tuning in and we look forward to seeing you next time.

Karena
Hello everyone, and welcome back to Market Insights, a series where we delve into interesting topics affecting equity markets. Today I have Cornelius and Jock with me. Thank you guys for being here today. So, let’s kick it off. So, we saw a strong US earnings season with almost 80% of companies beating their estimates. Could we maybe unpack that and spend some time looking into these results.

Cornelius
Is the number north of 80% is the strongest we’ve seen since 2021? The aggregate earnings growth came in just above 12%. And information technology as a sector led the way, with more than 90% of companies beating earnings estimates. All the big tech companies delivered very robust results with Microsoft, Apple, alphabet, Amazon, everyone reporting very strong results and giving positive outlook statements.

Some of the shares were rewarded with share price moves up 8%. Amazon got clapped a bit because cloud growth came in weaker than the market wanted, but still very strong results. If you think about the extent of the earnings beat just over 8% earnings surprise, which means the earnings came 8% ahead of consensus. That is in line with the five-year average.

It’s custom for US companies estimates to come in high at the start of the year, then get downgraded then the companies come in and beat, quite comfortably. So, 8% isn’t something new. Interestingly, we saw consumer discretionary as a sector beating by 14% in aggregate, which shows that the US consumer is in a much better space than people expected.

And we can also see if we look at the amount of references to recession that completely dropped off the normal levels, where everyone was quite nervous in, Q1 reporting season, just, of the Liberation Day. Almost a quarter of companies spoke about the recession this time around, six sectors there were no companies actually mentioning recession.

If we think about the guidance that the companies provided, more than 60% of the companies issued positive guidance which means the earnings that they’re guiding the market, is ahead of what consensus is pencilling at the moment and there you have a mixed bag, industrial companies are actually issuing strong guidance as well as healthcare. And then by far the most positive mix is information technology.

Karena
Brilliant, thank you for that colour. That was really informative. So we’ve seen really strong earnings growth and guidance coming out of the infotech sector, but that’s not something new is it Jacques?

Jacques
No. So taking a bit of a step back following the earnings recession that the Mag7 companies went through in 2022 with the pullback in spending, we’ve seen very strong growth delivered by the mag7 over that period and using 2024 as a base we can see that they’ve delivered more than 30% upgrade to earnings of both 2025 and 2026 calendar years, which is opposite to what we’ve seen from the S&P 493, where they’ve had between 5 to 10% downgrades in their earnings. So, looking at the total shareholder returns for the year, very similar to last year where it’s been driven predominantly by the Magnificent Seven, which roughly falls within information technology and communication, and again driven by the superior earnings growth posted by those businesses. Four of the sectors actually posted negative earnings growth while benefiting from a rerating that’s driven the total shareholder return.

Karena
Brilliant, thank you Jacques. Please feel free to join us for our next session, where we’ll unpack the information technology sector in a bit more detail. Thanks so much.

Hello and welcome to Macro Pulse. This week we’re going to look at monetary policy and look at some of the extraordinary developments we’ve seen both in local and global central bank policy. But first, why is monetary policy important? Well, it says interest rates, which influences the cost of capital, credit conditions and the flow of money between savings, consumption, investment between different countries around the world. So, monetary policies are key variable in analysing macro trends.

Let’s start with the US. The US typically follows a dual mandate between price stability as well as maximum employment, meaning inflation and growth. On the growth side, the US economy has weakened to below trend. When we look at recent consumer numbers, they’ve weakened. That includes the most recent jobs number, the monthly jobs number that we saw for the month of July.

It showed that due to some really big downward revisions, the three-month average job gain over the last three months now is 33,000 jobs per month, which is the weakest level. It’s been since the pandemic. These numbers were so bad that Trump labelled them rigged, and he fired his head of the rule of labour statistics, and the person that’s supposed to replace her has said that he will stop producing the monthly job numbers until they’ve been corrected.

So, this obviously brings in some complications for the fed, which has become increasingly more data dependent. But the fed is also fighting fights along independence in the sense that Fed Chair Powell continues to be criticized by President Trump, is now a lawsuit, potentially, that will go after, Fed Chair Powell for his role in the increasing cost of the renovation of the fed building.

Scott Pearson, the Treasury Secretary, has also called for, Powell to reduce rates by 50 basis points. At the next meeting. During the last FMC meeting, Jay Powell indicated that the reason for not cutting interest rates is because of the uncertainty that has come along with the trade tariffs. And so, putting the blame to some extent on the Trump administration, if you look at the inflation numbers, they are around 3%.

And when you look at the most recent print, it does look like core goods inflation continue to rise as the import prices continue to increase from these increased tariffs. However, the pass through has been fairly slow and fairly weak. And so, some of the fed members are willing to look through these increases and are starting to talk about rate cuts.

The market now prices in the 25 basis points rate cut at the next meeting in September. But if we indeed see a little bit more weakening in the US data, we could see the market starting to call for 50 basis points at the next meeting. And in September. However, what we have learned from the central bank history is that central banks, and particularly the fed, typically waits too long before they start cutting interest rates.

And then ending up having to cut faster and deeper than initially anticipated. One central bank that has been proactive has been the ECB. They’ve cut rates now to 2%. Inflation has come down to around 2%. And along with the increased certainty now that tariffs have been set at 15%, some of the sentiment has improved. And you see that in some of the economic data points.

That has also improved. This weekend they will be meeting between Putin and Trump in Alaska. And that could still have an impact on European assets. So, one that we watch closely. The Bank of England also had a very interesting meeting. They voted twice. The first time that a split vote of four for one, which means four members voted for hold, four for a 25 basis points cut, and another member voted for 50 basis points cut.

It kind of shows you the uncertainty even within the central bank, is that typically, since with exposure to many economists around them, in trying to figure out what is happening from a growth and inflation perspective in these respective countries, after the second vote, they voted for 25 basis points, cut. But Governor Bailey has been quite hawkish in indicating that they can’t be premature in cutting interest rates.

And it is still a lot of uncertainty around the inflation outlook locally in South Africa. We also receive the 25 basis points cut the market expected to 25 basis points cut. That was less of a surprise but was a surprise. However, was the announcement by the governor that the Salt will, in the future conduct monetary policy in a way that targets the lower end of the inflation band, the inflation band sitting between 3 and 6%, and so they will target 3%.

Now this is not an official announcement of the change in the inflation target. That has to come from the finance minister, which hasn’t indicated yet when he will do so and what the new inflation target will be. They are still looking at achieving political consensus at this stage, implicitly. The Sarb is targeting 3% as an inflation target, which does bring in some complications in that bond, your policy in fiscal policy is not aligned in terms of the inflation outlook, fiscal policy. Think about setting wages, for instance, and making adjustments for wage growth is now still looking at a 4.5% fall. Monetary policy is looking at 3%. This is unsustainable for a prolonged period. And so we expect the finance minister to come in in the next few months to also, adjust the inflation target officially to the lower end.

We think with inflation still low but slightly rising, there’s still scope for the Sarb to cut interest rates maybe once more in this cycle before it starts with a pause to see if inflation expectations and inflation indeed comes down as they would want. Finally, the in China there’s the central Bank of China. The PBoC is also still set to lower funding costs.

The recent Politburo meeting in July indicated that authorities still look to reduce funding costs. Now the economy is soft, but it’s not terribly weak, and therefore authorities does have some time to use targeted policies to improve growth, and to support the local consumer. In summary, central banks could therefore be categorized in one of two camps the first camp and predominantly the fed, maybe also the UK to some extent, but the fed where inflation is still fairly sticky at around 3%. Fighting the central bank independence. But ultimately growth is slowing down from a higher level, and the fed and the UK will have to cut interest rates. The second camp is more that of the ECB. Some emerging market central banks, including the PBoC in China and this African Reserve Bank, where inflation is low. We have seen some rate cuts already taking place, but there’s potentially more scope for easing to support growth from a low level.

And we believe and we want to favour more cyclical exposure in those countries, we central banks said in camp two, where inflation is low, we could potentially see a little bit more from an easing perspective to support growth. All of these dynamics also mean that the US dollar is weakening, as real rates in the US is coming down as a result.

But also, we said with increased policy uncertainty in the US relative to other markets, this has been favourable for emerging market currencies, including the South African rand, which is one of the best performing currencies. Over the last month and over the last year, along with many emerging market currencies, has appreciated by between 5 and 15%, which is also driven down inflation dynamics.

This improvement in rand is largely being driven by an improvement in terms of trade, the prices of goods that we export, predominantly commodities. 50% of our exports as commodities, they are rising in price, while the prices of the goods that we import, in particular energy, 20% of our imports is energy. They are falling in price or the prices remains fairly low.

And that positive terms of trade, leads to an improvement in the rand. This improvement in the rand also has got implications for South African assets. In particular, African equities have been a defensive play relative to global markets over the last one year, two year and five years, South African equities have outperformed US and global equities in rent terms.

That’s all for this week. Thank you for watching.