The period of monetary policy tightening we have entered, which Avery termed the ‘revenge of the Fed’, comes after a long period of “stimulatory” policy, where rates were at zero or even below. Such low rates pushed investors up the risk spectrum and into equities, which boomed in an environment that became known as ‘Tina’ (There Is No Alternative … to equities).
Now that that ‘Tina has left the building’ and there is an alternative to equities, Eddy said, the market is starting to recalibrate, which has “spurred the volatility we have seen this year”.
Higher interest rates attract capital and with the US central bank hiking rates really aggressively “we have seen lots of money flow into US, and the story of this year has been material dollar strength”. Eddy noted that often at times of economic stress emerging market currencies come under more strain, but this has not been the case this time around. “Other developed market currencies have weakened against the dollar more than emerging markets have.”
The rand is feeling some pain (down 10%) against the mighty dollar but things are looking worse for currencies in developed markets, such the pound, which is off 17%, the euro, down 14% and the Japanese Yen, off 20%.
“That is such an important point to make,” said Avery, who noted that everyone is looking at the rand and yes, it has weakened against the dollar but, against other currencies, not that much, and “it is not just loadshedding and Eskom” causing the pain.
So it’s not all bad news. But, let’s all hope that central banks don’t tighten too aggressively and push the global economy into a recession.
16 September:
SA: potentially the poster-child of the global energy transition
In the second edition of Not The Daily News by 10X Investments on Classic Business on Thursday September 15, 10X’s Chief Investment Officer, Anton Eser, talked to Michael Avery about ESG investing.
After unpacking what ESG investing is and a little about its history, Eser noted the importance of separating the cynical view (that it is just a marketing tool) from the real changes – from emissions disclosure to pay within companies – that are being achieved thanks to investor pressure on companies.
“There is a cynical view, but there is also a real, almost financial, view that you can’t invest in a company that is not sustainable … [and] … not integrating these factors into the way you run your company is just not sustainable,” Eser said.
The conversation then touched on the huge opportunity for South Africa and the country’s potential to be the global poster-child of the energy transition.
9 September 2022:
10X brings you Not The Daily News with Michael Avery
10X Investments has partnered with Michael Avery and Classic Business to create a new weekly radio insert, Not The Daily News, that will largely ignore the daily news in favour of focusing on longer-term themes that are driving the market. The insert airs on Classic Business on Fine Music Radio (101.3 FM) on Thursdays from 6pm.
In the launch episode, on Thursday September 8, Michael Avery talked to 10X’s Chief Investment Officer, Anton Eser, about global recession. Michael asked Anton questions about the potential arrival of a global recession, what form it could be expected to take and how long it might last.
Among other things, Anton gave some insight into the importance of the cycle of quantitative easing and the tightening we are seeing now.
Noting that the terminology employed can often be too technical for the man on the street, Anton compared this easing and tightening to an alien spaceship filled with money landing on earth, buying up a bunch of securities and leaving. Now, he said, the extraterrestrials have returned and are demanding their cash back.
Find out more by listening to the podcast
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250).
