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The Asset Class: Malcolm Charles · Strictly Business

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  The war against Iran by the United States and Israel has caused problems for markets
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  globally,
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  but particularly for emerging markets.
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  And South Africa has not been spared with me as Malcolm Charles, Portfolio Manager
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  at 91 in Cape Town.
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  Last time we spoke, Malcolm, everything was going so well.
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  And as always in markets, we knew that something must happen, but we didn't
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  realise the extent
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  of this particular happening.
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  It really has been quite brutal, hasn't it?
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  To be honest, Lindsay, it's been horrible.
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  It has shaken the entire market, global market, as you said, and the
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  ramifications, unfortunately,
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  are dire for many, many economies.
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  And I think the scarring for growth across, no one's going to be untouched by
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  this.
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  And that's the sad thing is, you know, so many countries were coming right.
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  but projection was positive, inflation was muted, growth was going to be okay,
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  interest rates were going to be cut in many jurisdictions.
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  And every single one of those assumptions is now off the table.
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  Yes, I think the question now is, is this just a blip?
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  Or is this a change in trend?
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  And I suppose when you look at it from an essay specific point of view, a couple of
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  years ago,
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  it might have been the second one, a change in trend.
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  But now we've gone into this crisis, and it is a crisis, slightly better off than
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  we might have been.
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  No, absolutely.
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  I think the silver lining is we went in pretty decent.
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  We just had a fantastic budget where it was conservative.
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  We had a ratings upgrade last year.
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  The RAND had rallied dramatically throughout last year.
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  Interest rates had been cut.
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  Inflation was at 3%.
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  So you can go on and on about how things were actually coming right.
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  We were started to see decent growth,
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  employment was even shown tentative signs of improving.
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  So we were in a very, very good space to go into it.
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  As you said, if it had been a couple of years ago when we couldn't even keep the
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  lights on,
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  then we might as well actually have turned everything off and almost given up.
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  So the country was in a much stronger position, and it's always good to be in a
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  strong position when the crisis hits,
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  because then you can actually...
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  Try and mitigate some of it, like we saw with the petrol price increase.
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  You know, the minister announcing a three rand reduction in the levy.
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  Now, we would not have been able to do that even a year ago.
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  Yes, it's cold comfort, though, when you see the markets that I'm seeing on my
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  screen now with the South African 10-year bond yield at
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  9.04%.
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  Bear in mind, it's come down from exactly a year ago, Malcolm, exactly a year ago.
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  Liberation Day was...
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  Actually, you know, it's 364 days ago.
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  Liberation Day put the South African bond yield at something like 11.15%
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  for the 10 years.
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  Now 9.04%.
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  But it has been to, I think, below 8%, hasn't it?
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  Yeah, no, no.
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  So it depends on where your reference, if your reference point was a year ago, then
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  we still, we fantastic.
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  If your reference point was a month and a bit ago, then you're a little bit sad
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  because, you know, the All Bond Index.
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  on last month, gave up almost 7%, but it had given you
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  29% from a year ago.
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  So it really is the reference point.
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  But to me, the sad thing is it was unnecessary.
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  It's not something that's made the world a better place.
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  And I think a lot of financial pain has been taken across companies, across
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  people,
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  across funds.
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  And that's the new reality.
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  It's a crazy reality right now.
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  And it's a very volatile reality.
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  Yes, it is.
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  It was so unnecessary.
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  And we could go on for a long time.
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  But it's not our job to do that about what has happened in the last four weeks.
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  But the reality is what we're going to do from now on.
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  And what are you going to do over the last month?
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  Have you been active in your portfolio construction?
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  Absolutely.
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  We've had to be very, very active because It wasn't something that was like, you
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  know, a change of economic cycle.
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  This was a shock to the system.
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  So,
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  you know, you couldn't really preempt it.
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  So we've had to very quickly reduce risk.
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  We've had to increase our optionality and our protection in portfolios and just try
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  and preserve
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  capital as much as we can.
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  We're in a very different inflation and interest rate environment than we were a
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  month ago.
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  We would, you know, as a...
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  as I mentioned earlier, we've gone from expecting two rate cuts in 2026 to, you
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  know,
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  if we get two to three hikes this year.
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  I don't think anyone will be completely surprised.
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  So, you know, we've had a changed portfolio risk.
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  We've had a look to try and increase yield with very little risk associated with that
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  yield.
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  Whereas a couple of months ago, you were happy to take a lot more risk in the
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  portfolio.
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  So absolutely a very active time.
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  But, you know, things change and you have to change with it and you have to adapt
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  your view, adapt your portfolio.
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  most importantly, bring down the risk in the portfolio.
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  Yesterday, which was the last day of the first quarter of 2026, markets rallied
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  strongly.
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  Wallet price came down.
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  Asset classes like equities went through the roof.
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  I think the Nasdaq was up nearly 4%, for example.
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  Bond markets rallied.
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  In other words, yields coming down.
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  And a lot of people might say that that was window dressing at the end of the
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  first quarter.
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  Other people will say, well, it's just another Trumpism, another careless comment
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  from the President of the United States,
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  and the markets reacted to that, and they should know better.
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  But what do you think?
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  Do you think that the worst is over, Malcolm?
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  Yeah, it's an interesting question, because I think a little bit of both
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  happened.
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  I think, you know, there is a behavioral end of the first quarter sort of in some
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  markets.
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  And I think Trump is desperate for an off ramp.
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  The problem is, it's a bit harder than you tariffs.
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  Tariffs were one-sided.
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  He decided to put them on so he could decide to delay them or take them off.
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  When you're at war with someone, the other party needs to agree.
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  And unfortunately, the longer it's gone on, if this was two weeks ago, I would
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  have said,
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  absolutely, it's an off ramp and he can claim his victory.
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  And I think we would have been okay.
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  The fact that it's gone on for a month and he's got ground troops in the area.
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  I think you've got to be a little bit naive if you think that we can wrap up and
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  say all the risk is off the
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  table right now.
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  I think caution remains and it's a little bit early to bet the farm on any markets
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  right now.
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  Okay, so you're saying to yourself the round has gone from 15.50 to 17 plus.
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  The bond rates have done what we discussed earlier on.
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  The South African Reserve Bank and the authorities in South Africa have been
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  swift to move in a way that they couldn't have moved a
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  couple of years ago.
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  But are you waiting with your tender drive for something concrete to materialize in
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  the next couple of weeks, hopefully?
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  Yeah, I think that's the prudent outlook.
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  You're tempted to go the human nature way and say, I'm going to back it against
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  this.
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  But we custodians of capital, we've got to do what's right.
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  I don't mind missing the first little bit of a recovery as opposed to getting in too
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  early and wiping out capital.
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  So I think it's prudent to be a little bit more cautious.
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  I think you can be a little bit more active in these markets when you have big
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  swings.
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  But to bet the farm on
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  Trump miraculously finishing a war after a month, I think is probably a little bit
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  irresponsible.
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  Malcolm, thanks so much for your time and very good luck.
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  And I look forward to our next chat, which might be sooner than you think.
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  Malcolm Charles is a portfolio manager at 91 in Cape Town.
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  The views and opinions expressed in these podcasts are those of Lindsay Williams and
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  various contributors and do not reflect the policy,
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  position or opinion of any other agency, organisation,
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  employer or company associated with StrictlyBusinessPodcast.com.
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  Assumptions made on the analyses are not reflective of the position of any other
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  entity other than the speaker or the author.
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  And since we are critically thinking human beings, these views are always subject to
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  change,
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  revision and rethinking at any time.
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  Please do not hold us to them in perpetuity.