Now’s not the time to be rushing offshore as the winds of change at home are expected to blow welcome growth into all SA asset classes.

This is the view of Old Mutual Investment Group’s head of macro solutions Peter Brooke, who adds that conditions at home are so bad they can only get better, while the inverse is true for the US.

As proof of his convictions, Brooke told a gathering in Sandton this week that Old Mutual has “actually been increasing [its] portfolio weights in SA”.

“Our offshore allocation is under the 30% regulatory threshold,” he said.

Old Mutual chief economist Johann Els said the diversified financial services company believes the ANC is on track for “a comfortable win” and, as such, they expect more decisive moves to materialise after the elections, all of which will contribute towards the strengthening of confidence levels across the country.

“And we already know that confidence is a key driver of growth,” he said.

“A good ANC election outcome and policy reform would lead to a stronger rand, based on improved confidence, and it could quite likely reach R12 to the dollar in 2019, with increased rand stability over the next few years if growth picks up in the direction of 3% to 3.5%.”

Brooke agreed, saying the “two most important themes that we are considering for the year ahead are a US economic downturn and a recovery in the SA economy”.

It was not all roses though, and for the positive outlook to have substance, the “reformists in the ANC” must make very important and definite policy decisions.

“The risk for markets and the economy is if the ANC remains divided and does not make the required reforms, given that there simply isn’t room for error in the economy right now,” he warned. “If SA does not resolve the Eskom crisis we will be downgraded to junk status.”

The SA economy has just clawed itself out of recession, the rand has been struggling and the stock market has gone nowhere, except — it would appear — south. According to Brooke, the cheaper equity valuation of the SA market is supported by good news on the valuation front across most SA asset classes.

We believe the current pessimism in SA is overdone and that things will get better, but that is unlikely to happen until after the election.
Old Mutual’s Peter Brooke

Higher returns

Old Mutual’s forecast for the country is premised on “the winds of change” that are blowing across the country said Brooke. He expects to see higher real returns coming through for all the local asset classes than has been the case over the past three or four years. The main reason, he says, is the change in politics.  

Brooke added: “We believe the current pessimism in SA is overdone and that things will get better, but that is unlikely to happen until after the election. We invest with a longer-term view.”

Here’s a summary of Brooke’s expectations:


He said he expects a better return from the JSE as it has become cheaper. “The forward price-to-earnings ratio of the market has de-rated from three years ago, when we were telling investors to brace themselves for a low-return world. If we exclude highly-rated Naspers, the market is even cheaper. This means we can get a better return for our clients in light of a potential recovery into 2020, especially as earnings are now depressed,” Brooke wrote ahead of the Old Mutual gathering this week.


Brooke says Old Mutual remains cautious about the property sector. The sector has endured a torrid year, with a plummet in the share prices of the Resilient group of companies amid accusations of insider trading precipitating a general decline in the sector. Brooke adds that property companies have built too much capacity meaning rents will remain under pressure.

“However, the cheap valuation means this asset class should still deliver a decent outcome. As the economy expands, the high-quality, diversified property companies we hold should do well,” Brooke says.

Bonds and cash

Simply put, Brooke wrote: “We are more bullish on SA bonds.”

The political atmosphere has resulted in SA emerging from the recession with clear movement from the political lieutenants to reform SA’s state-owned enterprises.

“This markedly reduces the possibility of SA going down the same path as Turkey, so our risk is better,” Brooke wrote. SA’s hawkish Reserve Bank that pursues an inflation rate of around 4.5% adds to the positive news. “The combination of these actions is good for bonds, which are now offering a good real yield,” Brooke says.