Latest / Drive with John Perlman / In Conversation Ninety One, change is opportunity

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In Conversation Ninety One, change is opportunity · Drive with John Perlman

• 0:00
  Speaker 1: You're with John Perlman on 702.
• 0:04
  Speaker 2: And at this time, 702 Drive is in conversation with 91.
• 0:09
  Speaker 2: Change is opportunity. 91 is always ready to invest in it. Now,
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  Speaker 2: global uncertainty is putting South Africa's economy under renewed pressure.
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  Speaker 2: From rising oil prices and inflation concerns to higher interest rates,
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  Speaker 2: the challenges are mounting. Yet, amid all this, the RAND
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  Speaker 2: has shown resilience and the country continues to to benefit
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  Speaker 2: from stronger commodity prices. So what does this rather mixed
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  Speaker 2: economic picture mean for South Africa's growth prospects and investment opportunities?
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  Speaker 2: Joining us to unpack these questions is Ruen Naidoo, who's
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  Speaker 2: a portfolio manager at 91. Very good afternoon to you, Mr. Naidoo,
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  Speaker 2: and thanks very much for giving us your time. I mean,
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  Speaker 2: the picture really is quite mixed, and the oil price
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  Speaker 2: and the Middle East conflict is certainly something that we
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  Speaker 2: are really struggling to get our heads around, certainly anybody
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  Speaker 2: who's considering where to put their money and why. I mean,
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  Speaker 2: what's the balance picture in your mind? Presumably, you guys
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  Speaker 2: are confronted with new information virtually all the time.
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  Speaker 1: Hi, John. Thanks for having me on the show. Yes,
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  Speaker 1: it is indeed a very dynamic situation. You know, this
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  Speaker 1: war initially was supposed to be over in four to
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  Speaker 1: six weeks. And here we sit some seven months later,
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  Speaker 1: still talking about the potential end to the war around
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  Speaker 1: the corner. You know, I'd say what's been interesting of
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  Speaker 1: late is the number of tankers crossing through the Strait
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  Speaker 1: of Hormuz has really increased significantly. but we're not seeing
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  Speaker 1: that come through in the oil price. The oil price
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  Speaker 1: remains elevated above a hundred, you know, and that has
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  Speaker 1: had massive implications across the board, particularly for interest rates as,
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  Speaker 1: you know, interest rates tend to follow the inflation outlook.
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  Speaker 2: I mean, one of the biggest reflections of all this
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  Speaker 2: difficulty that is oil price related, Mr. Naidoo, is in
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  Speaker 2: the inflation figures. I mean, Should we expect more rate hikes?
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  Speaker 2: Is that simply to be expected and pretty unavoidable or
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  Speaker 2: could things change?
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  Speaker 1: They certainly could change if you had a rapid de-escalation
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  Speaker 1: and you had a return of refining capacity so that
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  Speaker 1: products such as diesel, petrol, jet fuel hit the market.
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  Speaker 1: But that's not particularly likely. So for the South African economy,
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  Speaker 1: we're watching two things, really the oil price and what's
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  Speaker 1: happening in global central banks. So with the Federal Reserve
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  Speaker 1: out next week, should they go ahead and hike interest
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  Speaker 1: rates against expectations, then that would probably lead the SAAB
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  Speaker 1: to follow. The SAAB has hiked interest rates two times
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  Speaker 1: versus the Fed having hiked one time. So they seem
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  Speaker 1: to want to keep pace with the U.S., We've had
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  Speaker 1: inflation figures come out of the U.S. yesterday and today,
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  Speaker 1: and those surprised to the upside. So while the market
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  Speaker 1: is not really pricing in a chance of an interest
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  Speaker 1: rate increase in October, the market certainly is pricing at
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  Speaker 1: least one more hike from the U.S. by the end
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  Speaker 1: of this year, so in December. So South Africa should
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  Speaker 1: likely follow.
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  Speaker 2: Why is the rent... Remain pretty stable. I mean, look,
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  Speaker 2: you know, there have been times when we've been closer
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  Speaker 2: to 16, sometimes nudging in the direction of 17. But
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  Speaker 2: it's been, unless I'm mistaken, within that band for quite
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  Speaker 2: a while now. Why so stable?
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  Speaker 1: Yeah, I think it's a combination of a few factors.
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  Speaker 1: South Africa is enjoying some of the tailwinds from structural reform,
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  Speaker 1: conservative fiscal policy and monetary policy where we change the
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  Speaker 1: inflation target. So we've had some rating credit rating upgrades. And,
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  Speaker 1: you know, we had some commentary from the likes of
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  Speaker 1: the Moody's credit rating agency. just two days ago, talking
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  Speaker 1: about the potential for further upgrades. So, South Africa remains
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  Speaker 1: a beneficiary from those tailwinds and it's feeding through in
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  Speaker 1: the red. Global investors see ESA as one of the
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  Speaker 1: favoured destinations within the EM asset class.
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  Speaker 2: I want to bring this, I suppose, away from macro
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  Speaker 2: to perhaps some of the things on the minds of
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  Speaker 2: our many listeners. I mean, for example, let's take somebody
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  Speaker 2: who is running small businesses, they're doing well, and they're
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  Speaker 2: thinking of, okay, let's expand. Let's add a branch to
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  Speaker 2: our panel beating business or consider looking at a restaurant
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  Speaker 2: in a neighboring town or whatever. I mean, is this
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  Speaker 2: a time to be cautious or are there certain opportunities
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  Speaker 2: out there that would suggest, well, actually, you know what?
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  Speaker 2: Don't go hell for leather, but, you know, don't sit
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  Speaker 2: on your hands either. What's the sweet spot in your view?
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  Speaker 1: Yeah, unfortunately, we have not seen too many signs of
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  Speaker 1: that expansion and that sort of business sector confidence come
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  Speaker 1: through yet. So, you know, while on the investment landscape,
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  Speaker 1: South Africa looks attractive for South Africans looking to build
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  Speaker 1: out businesses. You know, you're facing these massive headwinds like
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  Speaker 1: interest rate hikes and rising petrol prices. So, you know,
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  Speaker 1: we need the global headwinds to fade away in order
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  Speaker 1: for business confidence to really get unlocked in the S.A.
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  Speaker 2: And then let's go back to investments because that's where
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  Speaker 2: we started. And I'll ask you this. I mean, invariably,
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  Speaker 2: when they're tough times, there are opportunities. How does Investec
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  Speaker 2: see the balance there? Cautious grabbing of opportunity or maybe
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  Speaker 2: just a time to watch and wait?
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  Speaker 1: Yes. So here at 91, you know, I work at
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  Speaker 1: the fixed income team and, you know, we came in
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  Speaker 1: to the beginning of this year and we saw this
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  Speaker 1: massive rally in bonds. Yes, we enjoyed it. It helped
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  Speaker 1: us deliver excellent returns for our investors. But we were
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  Speaker 1: scratching our heads about the next 12 months and where,
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  Speaker 1: you know, returns were going to come from. But, you know,
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  Speaker 1: as we sit now, your government bonds, for instance, paying
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  Speaker 1: you 8.7% for a 10-year government bond, that's still way
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  Speaker 1: in excess of inflation, way in excess of the repo rate,
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  Speaker 1: what you can get from cash. So, you know, in
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  Speaker 1: some ways it is an attractive environment to get back
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  Speaker 1: into yielding instruments such as fixed income.
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  Speaker 2: Thanks so much. Ruin Naidoo joining us from 91, where
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  Speaker 2: he is a portfolio manager. Two minutes to four.