Speaker 0:
welcome to Asset T. V's local multi asset panel with me, Joanne. Today I'm joined by quite a few people by the looks of things. So let's start off. Rory Kaska Jacobson, portfolio manager. Alan Grey, Sandile Mea portfolio manager. M and G Investments Bastian, chief investment officer, Prescient investment management and Peter Brook, portfolio manager of Mutual Investment Group.

Speaker 0:
Welcome to you all

Speaker 0:
today, guys. We're going to deal with sort of the global landscape, look to the local landscape and then portfolio construction. So I'm gonna start off with you. Um, it's hard to believe, but we're still talking about inflation, and it's still the the topic that everybody wants to understand. You know, structural, you know, temporary et cetera. What's your views on inflation in the US globally and globally? Yeah. Look, I think you know one of the interesting things is

Speaker 0:
this time last year. You know, if you sort of look at, you know, sentiment analysis, if you look at what people were concerned about, um, inflation was certainly top of mind. But people had expected inflation to sort of roll over in the second half of the year. And what you're seeing is you know, in classic inflation terms. Initially, you had, you know, the supply shock. Then it became an energy shock. Um, and that was, you know, sort of goods phenomenon.

Speaker 0:
And, you know, if you do your inflation modelling properly, you'll understand. You know, if it's a persistent goods shock, it will feed into services. And we're seeing that all over the world.

Speaker 0:
So you know, whether you're looking at developed markets, whether you're looking at emerging markets, inflation is quite sticky. So if you do a heat map, you know of any country group of countries, it's all red, indicating it's a lot higher than it was. Um, you know, on average over the last 10 years, and when this rolls over, no one really knows. Um, but what's clear is that the market itself is struggling to price for this. So, you know, a consequence of that is elevated volatility.

Speaker 0:
Um, you know, you're seeing assets that are sensitive to inflation, actually doing quite quite poorly, Um, and and you know, a whole lot of uncertainty and and quarrel with, you know, what central banks are saying? What? The data is coming out as so for us. You know, we We have no clue where inflation is gonna go. Um, but we are fairly cautious about, um, the investment landscape. It's almost a mirror image of what you had in the post G F C period, where the market is struggling to price for lower for longer.

Speaker 0:
It certainly seems as if higher for longer is probably the new regime. So, Peter, we've had UK inflation numbers this week, which again were incredibly high, I think over 10%. At the same time, you've got a property market in the UK that's completely predicated on low interest rates. How does the central bank in somewhere like the UK, solve the inflation puzzle when the housing market could bust go bust? If they raise rates too high?

Speaker 0:
I don't think they can. I think the UK is doomed.

Speaker 0:
OK, no, um,

Speaker 0:
I think across the world you've got different markets in different states. Um, but generally the Anglo Saxon world has had these property booms, which has led to excess leverage. So I think Canada, UK Australia and maybe a bit of Sweden. They're not very English, though, um,

Speaker 0:
Anglo Saxon. But

Speaker 0:
I think all of them are going to be under pressure in terms of property prices and how you get that balance. Um, US sort of almost solves a lot quicker because their property market is so responsive. Um, we we've got no inflation in Asia, so I think if you look at these different pockets, it's the property, residential property and commercial property. Excess leverage is going to be under pressure from higher,

Speaker 0:
Great for longer. Um, and I think that will put pressure on there.

Speaker 0:
And as each country has to try and navigate their way through, the surprising thing to me is I think emerging markets actually look a lot better on this. They don't have the same degree of inflationary pressure. Um, they have many cases. They hiked rates aggressively, and actually their next route is lower rates, and I think they'll be able to almost lead the world down. As soon as the Fed goes on pause, you'll have emerging markets cutting rates,

Speaker 0:
I said. We're talking about pausing of the Fed, and this is why we all care so much about inflation, Um, to the point that you know, markets are grappling with it. I I kind of look at the tech market and look at the bond market. They don't see grappling. They seem to be thinking rates going to be cut very quickly. What's your view in terms of what the Fed does next? Yeah, that's a good good point. And thanks for that question. Um, I I guess it's important to look at forward looking inflation metrics to understand where the Fed is really going.

Speaker 0:
So, um, I do think the market is not actually struggling us. And the is price inflation. We've got forward me price measures for forward inflation, like inflation swaps break even inflation. So we know exactly where the market is pricing inflation to be. And with that, we can also see where's a mismatch in terms of where the market is and where the Fed is. So the Fed is looking at these metrics. These metrics haven't risen. These metrics are actually telling us inflation is going to come down.

Speaker 0:
Yes, inflation has been sticky, but the forward looking metrics continues to tell us inflation is coming down. And with that, the market has started to price the Fed for cuts. So we are now sitting at 5% nominal rates at the front end of the curve, and we are priced to go back all the way down to 3% in just, I think, 18 months, Um and that in itself tells us what the market thinks. The market thinks there's more more cuts, but it's obviously a risk that these cuts are not delivered.

Speaker 0:
I love that term. The markets, you know, Rory, could the markets be wrong? I mean, the markets have priced in rate hikes, rate cuts, They're all over the place, you know? What do you think about what the bond market is telling us at the moment? I mean,

Speaker 1:
our whole business is based on us thinking that the market is generally wrong. OK, Uh, and I mean, that sounds weird, but I mean, so we we're constantly trying to evaluate from a bottom up perspective what we think is attractive and attractive. And if the market was this incredibly efficient machine that always pricing accurate accurately,

Speaker 1:
that would make the job of the active manager and yet impossible. So we obviously believe there will always be opportunities people get overly optimistic or pessimistic. Um, in terms of where do we think the bond market is going. I think it's extremely difficult to know at this point in time, Um and we're looking more at well, what risks are priced in.

Speaker 1:
And so if you look at developed market bonds, I still don't think you're being adequately compensated for the risk that inflation might be higher for longer.

Speaker 1:
And so there's a number of developed markets where if you take off inflation, real rates are still negative and all close to zero. And, you know, look, inflation might come under control. It might not. I think one of the things to highlight, though, is if if if you look at the seventies, you had a period of very high structural inflation, but it was also cyclical, and so there were points in time where inflation looked like it was coming under control, and then it spiked again, and then it looked like it was coming under control and then it spiked again.

Speaker 1:
So I I also think it's a bit of a mistake, potentially, if inflation does start to subside over the next 6 to 9 months that you think, oh, everything has been fixed and we can just carry on as normal as we did in the 20 tens. I think that period where interest rates were globally suppressed and you had these long duration assets doing incredibly well, I wouldn't bank on that repeating again.

Speaker 0:
So do you think we're I mean, just talking about this interest rate environment that we currently find ourselves in? Do you think we're in a different paradigm? We've come from this kind of incredibly low interest rate environment, and we're all trying to grapple with where inflation is going to end.

Speaker 0:
But is it a true statement to say that in interest rate is gonna be higher than we used to for the last 10 years? Do you think that's an environment to just to Rory's point? Do you think that's where we're going? Uh, look, we're there already. If you look at the emerging markets, so you know, a lot of E m markets are pricing in some fairly, you know, attractive real yields at the moment. Even if you know, you take off contemporaneous inflation, they're still looking quite innovated. Um, but as you know, sort of Rory touched on in developed markets. You have a problem? Um,

Speaker 0:
who knows where we're going? I think you know. One of the things we worried about is that we haven't seen the level of accidents that one would expect after, you know, 304 100 basis points of surprise rate hikes that we saw in 2022 If you recall it in 2022 January, the market was literally expecting the Fed to hike by, at least at most, 100 basis points. And you've seen, you know, almost four times that over the year. So, you know, the fact that you've had, you know, some crypto assets blowing up?

Speaker 0:
Um, you know, some, You know, I I don't know, uh, gifts, uh, blowing up That cannot be the sum total of what the market and as the prices have to deal with after, you know, such tightening. Um, you know, you're waiting for a while. You've seen a few of them, right? So we've seen S V b. Um, you know, already having, uh, some some pretty, um phenomenal. Fractious, uh, price action going on there?

Speaker 0:
Um, I it's it. It cannot be that, you know, after we've been used to 10 years of negative real interest rates, that's all that's gonna happen. It surely must be some other issues around the corner.

Speaker 0:
Yeah, I think you can potentially answer that question. Not so much in the short term, but in the longer term. If you try and look forward for the next decade and you say,

Speaker 0:
is inflation going to be higher in this period? I think there's quite a lot of structural forces that are pushing it that way. Lack of investment in energy being one of the big ones, um,

Speaker 0:
demographics. In terms of the supply of labour, there's a shortage of labour all around the world. You look at sort of whether it's migrant labour out of Philippines or Zimbabwe. There's just strong strong demand for labour as demographics ages.

Speaker 0:
And with that, we see higher wage inflation, more power to workers than there used to be. So quite a lot of big structural pressures that I think gives higher inflation and therefore it's more likely that rates on average will be higher. And if you look at the period that we actually that you're referring to you had

Speaker 0:
and naturally low real interest rates all around the world, so

Speaker 0:
it's more normal for them to be higher. So I I'm I'm pretty prepared to take that call That rates will be higher on average for the next decade. In the last decade,

Speaker 0:
possibly more in nominal terms in real terms,

Speaker 0:
because with higher inflation and higher rates, you you you almost guaranteed on that.

Speaker 0:
OK, so again we discussed inflation. We're looking at interest rates. We're trying to grapple with the kind of world we're now living in. Sebastian, when you look at your global portion of your portfolios, how are you thinking about this in terms of your asset allocation mix from a global perspective, when you look at your local multi asset portfolios? Yeah, a good question. And I think, um, for that question, we have to start with the change in regulation in South Africa to enable us to go 45% offshore. So that speaks to your question and makes your question actually even more important.

Speaker 0:
Um, how do we grapple with that? Well, first of all, you want to go more offshore, you wanna have more offshore exposure and, um, that's what we're doing. How should your offshore exposure mix look? Well, it needs to be highly diversified. So we have heard a lot of different, um, views already a lot of risks out there. How do you get rid of these risks? Well, you diversify. So, for example, in our balanced fund, what we hold in our share portion,

Speaker 0:
um, it's more than 3000 names. Simple as that, because we go with the M SI world and we go with the MS. C I emerging market. And I agree with, um, the story which was pitched earlier, that the emerging markets might have a good run going forward. So we have a slightly bigger exposure to what the emerging market that's paying off already with the opening of China. So long story short. Um, I think, um, being correctly positioned offshore becomes ever more important more important than,

Speaker 0:
um, before in South Africa. And it becomes particularly important to get that mix right to get basically the allocation right there. And for that, you need to have broad exposure, as as we position ourselves. OK, let's get back to this broad exposure. So, Rory, you mentioned earlier that you didn't think the bonds were necessarily pricing and the risks that were out there,

Speaker 0:
Uh, and when we look at global asset location. We've got Bonds, we've got cash, We've got equities. Historically, South Africans have just taken all their money off shore to equities. That's been the only call. And I think as to Bastian's point, with the 45% opening up and with markets now not being an obvious call on equities, how do you think about asset location globally with your in your portfolios? Yeah,

Speaker 1:
that's a good question,

Speaker 1:
but I think one thing to highlight is so equities have been a fantastic investment. Call it the last decade, but actually, if you unpack what drove that? It was almost exclusively the USA and within that US tech. So if you look at the rest of the world MS c I world excluding the USA, it's actually been a pretty miserable place to invest in equities. And so we've seen quite significant disparity and opportunity set across the world. And so,

Speaker 1:
you know, we're very much underweight US and overweight E. M. And other developed markets on the offshore slice and then similarly, South Africa. You know, it's been a pretty poor place to invest on the equity side. In fact, you could you could have had a much easier Job as a balance manager. If you are a domestic manager, put all of your money in bonds in South Africa, you were probably in far less volatility and made a better return for your clients. Um, and despite all the negative news around what's going on in our politics and our lack of growth, we see a lot of equities that we think are relatively cheap

Speaker 1:
in South Africa. And now one thing I want to just highlight when I say that is that's talking to the J S E, which has a number of companies which just happen to be listed in South Africa, which for all purposes are actually multinational companies. So if you look at our portfolio, um, we've got overweight on S a equities, but that's a skew towards a number of multinational companies with companies like British American Tobacco A B N Glencore, Um,

Speaker 1:
in terms of pure S A n. We're very much focusing on businesses that we think are either incredibly cheap. We have somewhat of a self help story or a particular reason why the market may not like it at this point in time,

Speaker 1:
Um and then on international fixed income. We remain very underweight, developed market bonds. And so, where where are we getting yield off? Sure, it's more likely in high quality Corporates where we think you are being more than we're not.

Speaker 1:
You're being more compensated for inflation being higher for longer than you would be in earning long duration government bonds.

Speaker 0:
OK, do you have a different view? Sandi? Um, do you think that, you know, equities are still the only story that look, I think you know, it's a fairly contentious view that, you know, developed market bonds are not,

Speaker 0:
you know, fairly attractive. But you have to be careful where you are playing. So, for example, you know we're quite well disposed to 30 year Treasuries. We think, you know, if you look across the world, they're probably the only developed market bond that's giving you a fair, real yield. And they sort of do some pretty decent things for the portfolio in the event where risk assets are selling off. So we quite like that, um, and

Speaker 0:
totally agree with Rory on the emerging market bond side. So, you know, we

Speaker 0:
quite like emerging market local bonds. Um, fairly well diversified So, you know, we've got a bit of Asia. We've got a bit of high yield in South Africa, Turkey, Mexico. Um, and even on the FX side, you know, we we quite like, um, carry as a, uh, sort of, you know, put it in the portfolio, diversify it, uh, and just let it do its job. Um, I I think where things are difficult is, you know, exactly on the equity side where you know,

Speaker 0:
if you look at valuations of US equities, clearly they're not the cheapest there is out there and even versus their own history. Um, you know, But there are markets where you are being, you know, overcompensated for taking that risk. So, you know, in the in the UK, for example, 4100 is looking quite cheap. Um, you've got some European equities that are looking quite cheap. You've got the emerging market equities. Obviously, they're looking quite cheap. So there's a lot of scope for you to generate some decent

Speaker 0:
returns for your clients. Um, by being quite tactical in even in, you know, the sort of broad equity basket.

Speaker 0:
Ok, let's just kind of stick to global first before we go into the local markets because it paints the picture, and a story we haven't spoken about yet at all is China. So China is doing well, doing better post covid. Does that impact your view in emerging markets in any way or emerging markets evaluation story? I'm talking to you, Peter. So talk to me about China and how you're thinking about that story at the moment.

Speaker 0:
Sure. So if I go with your previous question about where are your offshore assets? The one area of difference is we are extremely negative on global bonds, and we are actually seeing more value than we have for a long time. So we've actually got 5% of our clients portfolio invested in. I think it gives you some very attractive diversification. And if

Speaker 0:
in an uncertain world, if we do get a recession, I think there will be those will be attractive assets. So then, in terms of the the equity component,

Speaker 0:
I think China reopening is a massive, massive theme. So if you think about the world as we've got

Speaker 0:
in covid, the developed world overstimulated got too hot, has got an inflation problem and its hiking rates very aggressively. China is in the exact opposite side of that, which is, they

Speaker 0:
did a bizarre lockdown, so they've got the lowest growth. They're basically coming out of a deep recession with no signs of inflation and cutting rates. That's so where do you want to be? Hot hiking rates or cold trough profits? Um, very depressed, cutting rates and stimulating. I think Asia is looking so structurally, Asia looks interesting. Um,

Speaker 0:
I think Chinese equities have got extremely depressed earnings, and I think that their macro is going to get better. It's interesting

Speaker 0:
that actually, yeah, So bottom line, I think China is looking interesting, but you do have specific risk there. So how do you diversify that risk? And I think there's quite a lot of opportunity in areas ASEAN, Thailand, Malaysia, Philippines. We've got positions in all of those countries and those markets big beneficiaries from, um, growing tourism, and so you can have a second round effect without necessarily having some having all your eggs in what is a

Speaker 0:
politically uncertain market. If you think about China, you know, Xi has shown us before, if you're an investor in one of those education names, you lost all your money. Uh, we weren't. But that is your risk so you can manage your risk in terms of better growth through having some of the secondary plays

Speaker 0:
risk. Bastian, Um, everyone's very bullish tie at the moment. I'm not saying you guys and everything I read and and yet we've forgotten how cosy they are with the Russians and how suddenly they don't seem to want dollars much anymore. How do you think about risk when you look at these countries? Because there's a valuation argument underpinning it. But then there's very much a political risk on the other side. So from a court perspective, how do you think about that? Yeah, it's a good point. I mean,

Speaker 0:
risk starts. In my opinion, risk management needs to start at the top, and the best approach to mitigate risks without sacrificing returns is to diversify. There's just no way around it. And we just got, um, the Chinese education sector mentioned where basically share prices were driven to zero um, overnight by a quick change in regulation.

Speaker 0:
So either you could have foreseen that, which is unlikely as we think, or you could have just had small exposure to that market by having a broad diversified portfolio. So when we speak China, Russia, the risks of emerging markets, I think there are massive risks everywhere. We need to be aware of these risks. Um, but I think diversification is the the easiest way,

Speaker 0:
um, to diverse, to to basically reduce those risks and to mitigate those risks without sacrificing the returns. We like to say diversification is the only free lunch. A lot of saying in our industry are not true, but this one is perfectly accurate. So it wasn't didn't work in 2022. I mean, you know, diversifying into bonds and equities ends up not being the great decision, and it has a lot to do to do with the inflation regime you're sitting in. So when you say diversification,

Speaker 0:
you've got to have a bigger meaning to that. So maybe give me some more colour because it can't just be I'll buy Bonds against equities 100%. So I guess diversification. I mean, we had 2022 was the steepest rate hiking cycle in more than 30 almost 40 years history. With that, you would expect all asset classes to correlate

Speaker 0:
and to underperform, so I will say yes. Um, it wasn't the perfect protection mechanism, but which one was any asset location called other than moving to cash, Um, would have been costly anyway, so I partly disagree with the statement that diversification didn't work. It did work. You disagree? Bus.

Speaker 0:
I do think I do think it did work. Um, I mean, you could have been much worse if you would have had a, um, overweight of the Chinese education sector. You could have been much worse. Was any overweight in China? Um, you this year again, it was an overweight in China. You are doing very well. So how do you predict that? It's very hard and diversification is your way out. Um, but one also obviously needs to believe in the numbers. Look at the facts. And I mean, we speak China reopening. Um, we speak about economic surprises.

Speaker 0:
It's important to not not just play these themes, because now it's topical. So what we do is really at present, and we really attach numbers to it as we have our own economic now casting. It told us quite early that the China reopening is going to be massive. We monitor economic surprises. They're over shooting. What? The economist on the street basically expected China to do

Speaker 0:
so putting that together. Um, I actually also adds to your risk management. Sorry to be honest. OK, so I'm picking up on that. I mean, one of the things you sort of learn in periods where nothing diversifies you is you have to be quite tactical, right? So the thing to do to have done in 2022 if you're worried about inflation, is be underweight duration. Really?

Speaker 0:
Um, and that was a fabulous trade. But it wasn't, you know, one line or or straight line performance through the year you had to be, You know, the massive opportunities to make money. So in your treasuries, if you're underweight the first half of the year, you you made off like a thief in the night. Um, you know, if you were watching guilt, markets and prices were basically swinging by 10% points

Speaker 0:
in UK guilt. That's an opportunity to To to admit so, yes, you have to be diversified. Um, but we also have, you know, other means to generate. So, like with the China story, you also have to be quite, You know, if you're looking at Chinese equities at the end of October, they were looking incredibly cheap, and you make 40% of that in two months if you bought that. So you know diversification. It's also diversification of how you implement your trades and your time rising because it's not just buy and hold,

Speaker 0:
not just buy and hold. I love that statement because this whole industry has grown up on buy and hold and that, you know, being long, long duration, assets and buy and hold has been the only thing that's actually worked for the last couple of years. Peter, do you think we're going into an environment that's going to be a lot more tactical than we've come out of?

Speaker 0:
Oh, that's such a difficult question because I think if you look at Japan as an example,

Speaker 0:
it went nowhere for a decade with big ups and downs driven by it cycle. So I think we could have something like that in terms of world markets. So then you've got, but

Speaker 0:
you're probably trading that on a 1 to 2 year view as opposed to I I personally have got no belief in the ability to trade sort of one month or three months not turning you guys into day traders Don't worry. Relax, but more that they are going to be. Things get overvalued and undervalued, and you need to take take those into consideration. Well, in a way, you're seeing it happening as we speak. You look at sort of tech sold off, recovered huge in six months. So just to put it in context,

Speaker 0:
um, the global I t index added six PE points

Speaker 0:
over a six month period, so earnings went nowhere. Price went up. Massive re rating, so that will create opportunities. I wouldn't, um, be excited to earn that right now, So we we are underweight. Yeah, OK, so when you say tactical, you're prepared to do tactical. It's very obvious, but we're not talking about day trading. I'm just going to Sandia's comment. I I do think we need to be more flexible and how we approach as a location

Speaker 0:
in an environment with more volatility. Would you agree with that? 100% true. And you need to think out the box. So if you're thinking only in a 60 40 world, you're missing gold. Um, you You're missing gold. I love that. OK, Rory Gold. I got to bring you in gold. The bar? What's it, Barbara Relic or something? Thank you. Uh, what do you think about gold right now?

Speaker 1:
So gold is probably the most divisive asset class out there. I think you either are a gold believer or you're not.

Speaker 1:
Um, but look, it's actually when all said and done, if you were a South African investor and you bought gold in 2000 in rand terms, you've actually done pretty well relative to the J S e. Um, does gold have this kind of surreal permanent value in terms of? It's the only ultimate currency.

Speaker 1:
I don't know. Um, you know, I focus a lot more on the when I look at gold. I look at it from a gold equity perspective. So I I think it does make sense. If you're a balanced manager to look at gold relative to other commodities and say Well, does gold look cheap on a relative basis and therefore doesn't make sense to earn a portion of your portfolio and gold as somewhat of an inflation or other currency hedge and then from a gold equity perspective. You know, a large part of our focus is on what is the global cost curve look like?

Speaker 1:
Um, to what degree is the gold price material above or below that? Are most gold miners making a significant amount of money, or are they mostly loss making? And look for that to inform your viewers whether you think gold is also cheap or attractive, and also whether the equities are attractive by a chance. I haven't really answered your question, but

Speaker 1:
I just think it's so It's one of these things where, if somebody says to you,

Speaker 0:
I've never had anyone admit that before. By the way, just so we're clear,

Speaker 1:
gold is gonna be $10,000 an ounce and he has some arguments Why? And you can have some very compelling arguments as to why, and equally you can say. Actually, it's the most pointless commodity out there because it gets dug up in the ground somewhere at huge expense and cost and then put back in the ground in a vault in Switzerland.

Speaker 0:
OK, I'm gonna bring in in here because because part of the goal discussion is also about the dollar and I haven't been able to see a tweet in the last two weeks where it doesn't the death of the dollar. You know, I think rumours of my death have been grossly exaggerated, comes to mind, but that's kind of where we're going with the dollar at the moment. So within again, looking at your portfolios as a location. How you're thinking about the overall construction. How does your view on the dollar,

Speaker 0:
you know, make decisions for you? Help me make decisions before I gather to jump on to Rory's. Isn't Alan Gray's philosophy to look long term? So if you look long term, you will see that if you really look very long term, the gold price grows with inflation and not much faster.

Speaker 0:
And in line with that, you get asset classes like equities, which have a natural equity risk premium which grow much faster. So if you look long term, you probably shouldn't let go. OK, but on that, of

Speaker 1:
course, but there'll be points. There'll be points in the cycle where it will make sense to so I mean we we don't construct our portfolio in 1973 and then not look at it again.

Speaker 0:
Yeah, I'll leave. I'll leave that stand as it is. Sometimes it looks like that, but it doesn't matter. Um, anyway, from here, um, from here to the to the dollar. So what's our view on the dollar? Look, I don't think that the dollar is really we at present have the view that the the the whole theme that the dollar, um, massively devalues, um, and potentially gets replaced by a more maybe IMF driven currency basket. We don't think that is one of the

Speaker 0:
major themes which we're going to see. Um, if I just look plainly at the gold price right now at the gold, the dollar price right now, look at it against the euro, not look at it against the rand. But even if you look at it against the rand, look at it against any other currency,

Speaker 0:
the dollar is still quite strong, right? So if that theme would be coming through quicker that we have this, um,

Speaker 0:
moving away from the dollar towards alternative currencies, maybe towards more emerging market currencies, maybe to like a basket of currencies. And then why is the dollar still so strong? Um so and and I think we've also seen during covid during periods where there is significant risk of that. Investors are actually forced to retreat back to the dollar. So I think the the whole story that the dollar is becoming less and less important

Speaker 0:
don't wanna say it's

Speaker 0:
entirely non sensical. Maybe over the very long term it might make sense. But it's not a trend which is imminent. It's not something we can like statistically measure with any significance as we speak. OK, but we are seeing a lot of countries outside the dollar bloc being quite anti dollars at the moment. And China and Russia are talking about the petro one. This is the petro dollar. It's quite a big thing. Well, how do you get a reserve currency status is the first question.

Speaker 0:
First, you're either running all the oil market.

Speaker 0:
Well, no one's trading in in Saudi dinner, are they? But they might trade a new one Well, so actually that that is an interesting one. I was in Saudi earlier this year, and that is the that is the absolute bedrock of the US dollar, which is the the the pig. And all those currencies are pegged And if you look at their growth plans, they can't afford them with the pig to the dollar and the pig and US interest rate policy.

Speaker 0:
So once you start changing that, that does become interesting. So the Saudi Durham is potentially the big game changer in the next 30 years. And, uh, not in the next 10.

Speaker 0:
OK, so respectfully disagree. So So who's gonna Who's gonna supply

Speaker 0:
new yuan, for example? You have Chinese. OK, guys, I don't want to get into conspiracy theories here. I think we kind of, you know, the goal has been quite an exciting one to talk about. And the dollar has been, you know, in itself a very interesting story at the moment, but I think it's probably a longer term story than a short term one. But it's something we all like to debate. But let's but you bring up a very good point, though. Talk about monetary policy and the Fed. Let's let's go back to South Africa now.

Speaker 0:
We've just had the rates I think, was it 50 basis points and potentially raising again because our inflation numbers continue to surprise the upside. Are we importing US monetary policy for an economy that's basically dying. So, Peter, my question to you is, Are we doing the same thing that the Saudis are doing? Are we making mistakes here?

Speaker 0:
So there is no underlying growth in the economy. Therefore, there's no underlying pressure on inflation from South African forces. So our higher inflation is very much around food, um, imported inflation, the weaker currency. And that is why the Kenya is acting the way he does. So the whole world and particularly emerging, particularly Africa, where you're a bit shorter on savings and a bit shorter on,

Speaker 0:
um, your own capital. That's why Asia has managed to resist it with lower interest rate increases. But yes, we are captives to the rest of the world because we are running a current account deficit and therefore our monetary policy is set by what's appropriate for other people as opposed to what is required for us. If I was in his shoes, I would do the same thing because if you didn't the currency would get out of control and you'd have you'd have second round effects.

Speaker 0:
So he's between a rock and a hard place, and the and the unfortunate problem is when those two grind together. It's the South African economy that's left crushed. OK, left crushed. Sandi, we've got load shedding as we speak throughout all the time and we're talking now about stage eight to Stage 10 or stage 11 I've given up. I mean, we'll be. I see. We'll get to a point. Where? When? When when do we have power? Maybe they'll change the wording.

Speaker 0:
Um, So how do you think about that when it comes to local S A Inc particularly in your portfolio?

Speaker 0:
Yeah, I think one of the things that really surprised us is how sanguine

Speaker 0:
we've all been about the impact of load shedding on things like food prices. Because, you know, the generators that all these retailers have to put up the cold stories that they have to power with those generators when the power is off, that cost has to go somewhere.

Speaker 0:
Um, and it seems to us, you know, the obvious place for them is to in order to maintain their margins is to push up prices. Obviously, you know, the countervailing forces affordability. So can people actually afford that? So what you're starting to see is a lot of down trading in goods baskets. So, people, you know, generally you'd be shopping at woollies. You can't afford it anymore. You go, um, you go elsewhere. Um, and that's a persistent problem that is gonna be there for a while. You know, to my wife.

Speaker 0:
No, no, no, no. We're in the same boat. Um, so, you know, and that makes you a little bit wary of some essay focused names, Obviously. Um, but, you know, Rory mentioned, you know, you are still finding some phenomenal businesses trading at, you know, frankly, some unbelievable levels that,

Speaker 0:
um, you know, have some fairly strong balance sheets. And you can see, um, how they can with this particularly difficult period from a power perspective. Um, so can I interrupt you there? You say unbelievable valuations. Give me one or two stocks and give me some unbelievable valuations from PE multiple perspective. I think banks are an obvious example. Multiple price to book. We quite like a for example, but give me some numbers here. You know, to me, the higher the p multiple or something, what's the You know,

Speaker 0:
I haven't checked this morning. Um, but but they're still trading on you know, single digit fees, which is quite attractive. OK, um, and and some of them, um, for example. You know, if you're buying Absa today, you're not actually paying for the African business? Um, which is another, you know, possible area of of of growth that you wouldn't expect in a South African focused stock. Um,

Speaker 0:
so people are just too pessimistic. So, Rory, let's bring you in here because you talked about that much earlier. Um,

Speaker 0:
I'd like to get more into this valuation story because you, as fund managers, love to throw this term valuations out there valuations relative to history relative to each other. You know, we have got a very different economy in South Africa than we've had for a very long time. The economy is going nowhere and I can't see any light. Excuse the pun.

Speaker 1:
I mean, it's having a massive impact on our economy. And so my our base case would be expect load shedding to persist,

Speaker 1:
and I don't see any solution imminent. So I'll be baking and load shedding for at least the next 1.5 2 years, if not longer. And it has a massive impact, not just on businesses but also on the revenue receipts of S. A r. I don't think the government is fully appreciated when ShopRite is spending north of a billion rand on generators and subsidising

Speaker 1:
Eskom effectively, it's gonna have a huge impact on their bottom line, and it's not unique to them. So most of the mining companies are forced to load curtailment, not load shedding. But if they are all producing, let's say between 10 and 20% less volumes because they can't, uh, refine or smelter the commodities they bring out from underground. In an environment where inflation is up at a mining level, probably between nine and 12% your unit cost inflation is going to be 20 to 25%. That's gonna have a massive impact on your bottom line.

Speaker 1:
It's not just Eskom that's failing our country. Transnet is a disaster. I mean, last year, when the coal price went to well over $300 a tonne, if they could have, Gila would have exported 3 to 4 million tonnes of additional coal coal. That would have been a huge benefit, not just to that company, but to our Fiscus. In terms of the royalties and taxes they would have paid.

Speaker 1:
And so,

Speaker 1:
ironically, large companies are probably better placed than small and mid cap companies. So in the public space, you know, companies have large balances they can afford to invest. But a number of small companies are gonna get destroyed in this economic environment, which is again not great. It's coming back to valuation. Where do we see opportunity? We also see opportunity in the banks. Ironically, the one we don't own is Absa. Um, so we like, uh, kind of a combination of the banks. But I mean something like standard bank,

Speaker 1:
you know, earnings are north of 20 rand. The share price is around 100 and 70. Banks are somewhat insulated in this environment. Um, and there is a bit of an endowment effect as well with high interest rates. So we think, quite reasonably, earnings could grow at 10 to 15% this year. Um, so that's quite attractive in terms of extremely attractive shares. So there are a handful, um, one example for us would be something like blue label telecoms. Um, they must win the award for the most complex reporting out there.

Speaker 1:
I think a lot of people aren't willing to do the work in terms of what is the look through value on cell C. Is there any value in Cell C Given that they've recapitalized it twice? Now there's still a significant amount of debt in Cell C. What has somewhat changed is the business model at Cell C has gone from trying to actively compete with N, T N and Vodacom in terms of network expenditure. They're now completely roaming predominantly on N. T N and to a small degree on Vodacom. So effectively an M B N o or a wholesaler

Speaker 1:
00 of of air time. And what's changed in the corporate structure is that the major equity shareholders also the major debt shareholders so blue label telecoms directly owns just under 50% of the equity, um, in CS C, and they own around a 70% of the debt as well.

Speaker 1:
And then, if you just look at what blue labels telecoms do, their bread and butter is distribution of prepaid airtime in South Africa. Their core business generates on high estimate between 80 cents and one rand per share of free cash flow, and the share price is just north of four rand 50. So you're paying around 4 to 5 times that business, completely excluding any value in Cell C whatsoever. So if if Cell C is finally able to succeed and

Speaker 0:
right Rory But the point you're trying to make here I mean, it's really interesting all these dynamics behind this company, but you're saying it's dirt cheap. That's what I'm hearing, right? So I'm

Speaker 1:
saying Yes, exactly. And you can find the company like that. That is a a company. And how

Speaker 0:
easy is it for any of the large managers in Africa to buy these more interesting opportunities? These small and mid caf ideas it if I If you have amount of money in the management, can you buy a sizable chunk of these companies?

Speaker 1:
Yes, you can. I mean, so I mean, if look, so could we take the position size to eight or 9% in our funds? No, but we can buy a handful of of these smaller midcap companies, and and we're quite happy for our clients to own 15 to 20% of the total shares in issue.

Speaker 1:
Um, and then you know, you five or six of them, and that can be a very meaningful position. OK,

Speaker 0:
so there are these gems out there on very low P multiples with different drivers of earnings. But But I want to come back to what was talking about just now about companies you know, having to put money into generators, burning diesel and the kind of inflation impact that's going to have for South Africa. Because every single fund manager I speak to in this country and hopefully somebody in this room will disagree. Loves s a bonds. So

Speaker 0:
if we have this environment where inflation is going up and the central bank here is almost forced to kill the local economy just to keep it under control, what does that mean for the S a bond market? That's a good question. I think the for the bond market, the

Speaker 0:
controlling inflation and being so credible being so hawkish in an environment where we're all questioning whether the local economy is crushed or not, speaks only towards the credibility of the South and speaks towards their ability to keep inflation eventually at

Speaker 0:
level of 6% or lower, which means our bond market, currently giving us yields of 11 or 12, Um, meaning that they are naturally very, very attractive. I mean, we have a very South African discussion here. Everybody is negative about the country. Load shedding is only going from stage 6 to 8 to 10. And, um, that despite we actually have never been there. And despite, um, we actually actively said now we can't actually measure the impact on load trading on the economy yet. But, um, I will say that

Speaker 0:
there are a lot of negatives to the fiscals. There are a lot of pressures on our government. There are a lot of political challenges. There are a lot of challenges for South Africa in general, and we're not saying that they don't exist. But what we are saying is, if you have some belief that South Africa eventually will be a 6% or lower inflation economy and we can earn 11 12% including the roll down the carry of these bonds probably 13 14% you're looking at significantly,

Speaker 0:
um, the returns which are significantly beating inflation by wide wide margins. So with that, of course, we would be one of the few managers which are probably positive on a government bonds,

Speaker 1:
but I I don't think you're one of the few managers. I think that's the most consensus call.

Speaker 0:
Yeah, Um,

Speaker 1:
So, uh, one of our points of distinction is we're quite underweight, uh, bonds in South Africa. And why is that is Well, first, if you on the short term, you're now getting compensated 8.5 to 9% on cash. So we think

Speaker 1:
the sub, the additional compensation at the longer end doesn't make complete sense to us. And then we do have some concerns around the Fiscus, and we have concerns around the fact that it just seems too easy just to own a government bond in South Africa at this point in time. Um and no. And then well, I'm wrong. I don't think the cycle I don't think the cycles played out. I think you could see interest rates go up in South Africa. Um,

Speaker 1:
and conversely, what you can earn is something like British American tobacco, which yields 7 to 8% in dollars, and they grow their earnings between five and 10% every year. And so, if you had a contrast well, do I wanna own a South African government bond nominal denominate in rands yielding 10.5 11% Or do I want to give up some of that yield? But I can own a globally diversified company yielding 7 to 8% in dollars and growing those earnings in an environment where inflation might be higher for longer,

Speaker 1:
I think I'd probably own the Latin in a delivery support.

Speaker 0:
OK, so you're going more for the kind of global equities versus S A bonds or argument that African? Yeah, but it is a global company. It just happens to be listed here. I think this is just a conversation I'd like to have with you guys today. You guys

Speaker 0:
spent a lot of time giving numbers that talk to the I should have 45% and offshore, 40% and offshore 35 some actually did their numbers. And it was 26 a half, whatever those numbers are. But the question I want to ask from all of you is local equities. Isn't that a misnomer? I if 75% of local equities have got their earnings from offshore

Speaker 0:
and you're then saying I want to be underweight global because I like local, but you're not actually buying local, are you? So I see you nodding. Thank goodness someone's nodding with me on this one. What does global even mean today in a r 28 portfolio?

Speaker 0:
And that's a very tricky question. Um,

Speaker 0:
I mean, uh, we we've probably been out on a limb versus our peers a bit in that We,

Speaker 0:
um certainly don't think valuations support maximising your 45% at the moment.

Speaker 0:
Um, and from a sort of strategic sense, um, our work suggests it's around 30% in hard currency exposure. Now, that can be a combination of, you know, 45% in global assets, and you hedge back, uh, some of that back into rands if you want to. Um, but, you know, our analysis suggests, you know, more than 30% in hard currency exposure,

Speaker 0:
um, is is is, you know, a sort of unrewarded risk in the portfolios and and just I understand b a t. Would that be a hard currency exposure? Would that be the fact that it's listed here, make a local share? I mean, how do you think about something like B a. T?

Speaker 0:
It's listed in S A. That's not a hard currency. As a model, it's price. And from modelling perspective, I see it as a South African. It obviously has certain qualities that make it slightly different to something like Standard Bank, for example, and that comes through in how you build your portfolio. But certainly I wouldn't say, um, I'd rather own B A T versus South African government bonds. To me, that's not really the question you don't have to own either of all.

Speaker 0:
Um, and you can have certainly make a case for, uh, owning. Uh um B A. In your portfolio, you can make a similar case, as Bastian has done for owning South African government bonds on valuation basis. I also want to add one thing there. Um, if we speak about local offshore, we always focus on the currency. Like why that I can own these individual shares which have been named either in rands or in dollars. What does the currency even have to do with it? OK, so

Speaker 0:
if I want to the MS a world I can earn it in rands, I can earn it in dollars. I can earn this, earn it in in any currency in the world. It's easily convertible without any risk. Without any currency. Well, you can do currency edging, but you get paid for that. Any risk, No risk, no regulatory risk, no operational risk, no market risk. So if I want an offshore name, I don't like it for the currency. I hope like it for the asset class. And that's a very important distinction to make.

Speaker 0:
I want to say one thing. At this point, it's interesting. We're speaking 45% offshore, 3000 shares available yet. Um, we focus so much time on the balance sheet of cell C, so I'm not sure if that is too targeted But what I want to say in terms of, um,

Speaker 0:
generally, um, to to

Speaker 0:
um um Sana's point he is He is right that, um, you actually get a lot of compensation for S a government bonds and especially if you look at the back end of the curve corporate Also the roll down, Um,

Speaker 0:
the the risk return at the back end of the curve, we think is actually higher than it is at the front end of the curve. If you also bake in inflation dynamics over the long term. I think it's a really profound question And, yes, as opposed to last time where it was wrong, Um,

Speaker 0:
we you cannot sort of bucket as global and local and equity and the it's you're building an integrated portfolio, trying to deliver a client outcome, and that's what we are trying to do. So when you think about that, it's if you wanted to get s a exposure, it's very difficult to do it. Actually, you have to buy a property. And even then, nearly 50 about 45% of that income is coming from offshore. Um, so it's s a Bonds s A banks and s A Inc sort of

Speaker 0:
Then you've got the local shares, the shares that are listed here by chance, um,

Speaker 0:
and you go overseas, and when you've got all these pieces and you try and make a whole of it another example, we spoke about the US and the US dollar. But I mean, so the dollar is one element of the exposure. The other is the valuation. But if you're taking money offshore and you're buying a you're putting 60% sorry, All country world index you're putting 60% of that straight into America into what is a more expensive market with higher interest rates and an expensive currency. So it's like

Speaker 0:
to build a truly integrated portfolio. You do have to break it into those different pieces and you have to allocate to those individually and British. American tobacco is completely rep. It's European consumer staples or global consumer staples. It it's a good thing to own in terms of the market at the moment, and it's a good thing in terms of price.

Speaker 0:
But you gotta put all those different pieces together.

Speaker 0:
And

Speaker 0:
so no, I don't think that it's local and global. I think it's an integrated portfolio which makes sense in its entirety, and right now, in terms of making sense of the world, I would be going longer on things with yield

Speaker 0:
and certainty because the world is uncertain and I think profits are under pressure and I think in that environment I I'm overweight, British American tobacco and I'm overweight. South African government bonds, uh, they're giving me certainty and a high degree of return, and I've taken out a whole lot of my s a small and mid cap shares, which give me exposure to a profit pool that looks like it's under pressure. And I've put that into Bonds.

Speaker 0:
So and then you can replace that with Asian Equity, which has got trough multiple trough profit and is cheap. And it got a bit of a recovery story, and that's what we're trying to do here is build the whole and that's a great word holistically looking at things now. So do you think, Peter, just to your point, we stop having the debates as what's the correct offshore exposure? Will the will the debate become? What should our overall equity exposure be? What should our overall bond exposure be? Will that be the new discussion point, not local versus offshore.

Speaker 0:
The move to 45 pushes you very strongly that way. So I run a worldwide flexible fund. So then you actually are completely free. But you are delivering to South African clients, so you have to be very cognizant of the rand and the value that's here. So I have quite a lot of South African assets, but I have the freedom to go else. So once you start in that world, and now that 45. It's almost at that tipping point,

Speaker 0:
but you have to think very differently about the way you allocate capital. Because otherwise you get

Speaker 0:
unintended mega exposure into American large cap shares. Um, into Tesla as an example. And that's not something I think will suit my clients for the next decade. Anyone have a different view to Peter, A very different view on Tesla or the integration Integrated portfolio Integrated portfolio makes perfect sense on Tesla. Yes, not that I have a view on Tesla because we don't form views on single stocks. But generally

Speaker 0:
we're talking about being very nervous to allocate a lot of money to the US market. OK, we are strongly negative on the US market as well. OK, fair enough point taken, but we need to, especially if we speak integrated portfolios. And we need to understand that the US economy is roughly,

Speaker 0:
uh yeah, I mean, the market cap is 60% of the MC world for a reason. The US economy is massive. South African economy is less than 1% of global GDP. The South African capital market is less than 1% of global market cap, so I'm even if I go forward

Speaker 0:
5% offshore and we at present do that. Um, we are more nervous about the 55% South African exposure. Despite being positive in South Africa. Just mention be positive. South Africa government bonds. Um, we're more nervous about 55% in South Africa than 45% offshore. So if we could go further, I don't think we're anywhere near the tipping point. And by the way, any academic research. If you believe in black litre, etcetera, et cetera, et cetera, you clearly would go more offshore. But the key requirement is

Speaker 0:
you must separate the currency, return from the asset class return. And that's key. We can't have 45% rand. Um, dollar exposure. It's too much. But we can have 90 95% global asset class exposure as soon as the currency risk is eliminated. And that is a very important misconception, which is often misunderstood. Uh uh, on a technical issue, you can't do it because of B n 90

Speaker 0:
the regulations so you can't hedge. You can't have the offshore assets and then hedge back the currency.

Speaker 0:
Not according to our compliance department. Well, you can if you have. If you do the hedging in the USS framework. OK, so you basically buy Buy into a A class. That's what we do and get around it. OK, I think this could be quite heated. Let's move on very quickly. That that was that's a good conversation. That's not a disagreement. That's an interesting one. Rory, do you a holistic balance sheet concept around running a portfolio? How do you think about that?

Speaker 1:
Yeah, I fall more into into Peter's camp here, where I think it's incredibly important to look at it holistically.

Speaker 1:
And the additional flexibility provided by the 45% is fantastic for the end consumer. If it went to 100% I think that's also a great outcome, because then you've got a much greater opportunity at any one point in the cycle to say, Well, if I look at this global universe, where am I seeing opportunities?

Speaker 1:
You do have to be cognizant of the fact that you have rand denominated liabilities for the vast majority of your clients, and that's particularly important for those clients who are drawing down every year from those funds. Can I just ask

Speaker 0:
you a question on that because it always fascinates me. A equities is that remote

Speaker 0:
asset liability matching when the S a equity market is basically a global market today? Because most of the companies get their earnings from offshore. And the S A Inc portion is so small today, surely that's not asset liability. Matching for me s a equities. I'm talking a bond is a totally different story.

Speaker 1:
Yeah, it's a yes or a no question, because I guess we're looking at those assets in terms. I, as I was trying to say, is the same is true for dollar denominated assets, so you can look at them. But

Speaker 1:
I think it just gives you more rope to hang yourself with completely. If you go offshore 100% and,

Speaker 1:
you know, look, we So when we build a portfolio, we're looking for to be relatively concentrated on the equity side, we're looking for kind of 15 to 30 or 40 names. Um, there is a benefit to diversification, but only so much. All of the kind of studies will tell you beyond 15 names. Actually, the incremental benefit isn't that great. If you've diversified and correlated. Yeah.

Speaker 0:
15 stocks?

Speaker 1:
Yeah,

Speaker 1:
Um, no incremental benefits. So it it does this. If you've diversified, the does get better. But I'm saying it. It gets better, incredibly slowly. So whether you own 30 stocks or 3000, if you've diversified across geographies and risk relatively gets, um

Speaker 0:
and I understand, Rory. So you you do We've had this. It's a very interesting discussion, which I don't think a lot of people are thinking about because 45% offshore has changed the game for you guys. And it's changed how you think about offshore assets. So do you also think that you know, we need to look at holistically what's our best asset class? And within that as class, which is the best way to populate it? Look, I mean, we've, uh, hasn't really changed our thinking materially.

Speaker 0:
Um, partly because, you know, our our work suggests you probably don't want to be taking 45% in a strategic sense in hard currency. And this is coming back. But this is what exactly? So? So if you head so so so so then it's not a 45% argument, because if we're talking about global assets in hard currency, then it's not 45 then 30 or whatever the number is, it's not 45. Um, I I think you know, for us the,

Speaker 0:
um we have been fairly sanguine about, um that and I think it's easy for us to be at the moment because S E valuations are so attractive.

Speaker 0:
The real question is, you know, if that flips and global assets become as attractive, what are we gonna do? We probably will go to that maximum. But, you know, still, in a strategic sense, we'd be fairly overweight global assets, um, and and, you know, on integrating your portfolio. While I do agree you don't need to hold 3000 stocks in order for you to be diversified or to satisfy diversification criteria,

Speaker 0:
I don't agree. It's 15. I think 15 is too low. So if you look at our global equity portfolio, we have between 100 to 100 and 20 stocks. Um, and it's constructed in a way, um, you know, we've controlled the risk, and what we're actually looking for is stock specific risk to come from that. So when we think about our global equities,

Speaker 0:
I don't want you know, my global equity manager to be taking massive amounts of country. I think we're I think we're being too hard on the South African equity market. As an aside, the reason that it correlates so well into the desired outcome

Speaker 0:
is partially because of the makeup of what we have. So it's not just a simple thing of British or American tobacco as a global company, it's we've got. But we've got a lot of other shares in there, sort of gold, um, shares, etcetera. So typically, when we have a big risk off when the currency goes, these are providing some buffer. So in terms of

Speaker 0:
and the actual modelling, it's not as simple as that. It is that we have a unique makeup of a market which actually matches liabilities better than we're giving it credit for. OK, fair enough. Rory, you want to say something I just

Speaker 1:
wanted to highlight on the 15 stocks. That's more the theoretical studies. Practically speaking, we do have significantly more of that. But,

Speaker 0:
um, so everyone to end with you. I want your best US allocation idea

Speaker 0:
and the one you're least excited about the next 12 months or if you don't want to do 12 months. Do three years, whatever your time frame allows. But that's what I want to talk to you about. So our best asset allocation idea not that innovative. And I must admit probably quite consensus would be our strong overweight on emerging markets. So that gives gets us excited. Um, so we have that in place in our balance fund at present, and we do think that's going to pay off. Pay off. It has started to pay off already with the Chinese reopening.

Speaker 0:
What's the worst trade We think we don't like very stock specifically linked asset classes like, for example, the South African property market. Very, very, very small market gap. Very, very tiny. Should play, in our opinion, almost no role in a portfolio which now can be 45% truly global.

Speaker 0:
Thanks, Sebastian. Rory.

Speaker 1:
Ok, um, so I guess the worry with this is almost definitely gonna get it wrong. And it's like often when you most confident about a share or an asset class is because you haven't seen the underlying risk that other people potentially have. So maybe you should ask me for my second best idea. Um, but Uh, but, um so I mean, for me, I would say the the space that I'm most excited about is what I would call old world economy stocks, the companies that actually

Speaker 1:
do things in the physical world. I think they've been unloved for a very long period of time. You're finding some of those very attractive in South Africa, and you're finding some of those very attractive offshore and probably more skewed towards emerging markets as well. And then the asset class, where I think risks are not yet being adequately discounted, as I've mentioned quite a few times would be developed market bonds.

Speaker 0:
Fantastic sun.

Speaker 0:
Um, look, no particular themes per se, rather looking at valuations. And, you know, wherever we look in the bond world, in the equity world, those assets that are, you know, trading at some pretty decent real yields are something that we like So emerging market bonds as an example, and South Africa happens to fall into that bucket. South African equities fall into that bucket, E m equities fall into that bucket, and even some, you know, developed market equities in Japan.

Speaker 0:
Uh, and some European equities would fall into that bucket the least exciting.

Speaker 0:
Yeah, I I agree. You know, in aggregate, developed market bonds are probably still quite iffy. Um, and you know, you have to be careful which ones you choose. You do need some developed market bond exposure, so your stock selection or country selection is quite key. Um, but in aggregate. Yeah, you could You could still see some. Some pretty ugly numbers coming out.

Speaker 0:
Last word from you. Cool. Well, I'll do it in on both hands. So the negative side is I'd be quite cautious on equity for the next 6 to 12 months. Um, I think that profit I think that the economy rates are higher. World economy is going to slow. Profits are going to come under pressure. Um, there are definitely lots of pockets of value. There's lots of opportunities out there. We've spoken about some of those,

Speaker 0:
but broadly but less equity and therefore on the other side. But more interest bearing assets. It's not too difficult. We've got two halves of a portfolio. So,

Speaker 0:
um, and within that we do have an overweight in South African bonds, but then we found opportunities in other areas, but even having a little bit more cash at the moment, I think will give you the opportunity to buy.

Speaker 0:
Because when we come out of it, we're gonna be investing that cash, buying those shares that are now just at a better price.

Speaker 0:
And then in the long run, that's what will give you your superior returns. Quick. Last question for me. Dollar cash or rand cash.

Speaker 0:
Uh, so we're a We're a We're a bit mixed. We actually have a bit, Uh, so we we're running a bit of global cash, which we almost never do, because it's not a good investment, but so we've got, say, 34% of liquidity sitting there, and we've got a similar amount in South Africa. Both of those are unusual. Um, so

Speaker 0:
both, I think have option value, both for choice. I'd take dollar cash. Um, we slightly underweighted s a cash. We overweighted s a bonds,

Speaker 1:
um, so similar to Peter. I think we've got an allocation to both of those assets. Um, dollar cash on the tips. You are getting a yield better than if you were getting kind of a year or two ago. Um, and then s a cash. We actually quite like it relative to s a

Speaker 0:
thank you.

Speaker 0:
I'll probably be shocked if I said dollar cash hatched back to Rand. So that's the dope. Now, we would prefer rand cash because we think the rand is massively undervalued. And also that the real interest rates in South Africa, especially at the front end, are actually higher than in dollar terms. Gentlemen, thank you so much for your time today. It was a really great chat. Thank you very much.

Speaker 0:
Thank you, sir.