I attended Schroeder’s presentation recently and Gavin Ralston spoke on “How Global Asset Owners are reacting to today’s markets”. He highlighted five trends in investing in this new era:
Trend 1: Central banks will prioritise inflation over growth. It will be interesting to see if the UK will continue to increase rates, given the impact the high-interest rates have had on the UK property market. I read recently that UK house prices are falling at the fastest annual rate since 2012. I am sure many South Africans are hoping the South African Reserve Bank will decrease interest rates as South Africans are also feeling the pinch.
Trend 2: Fiscal policy likely to be active. In the past, investors would invest 60% in equities and 40% in bonds given the high correlation between the two. In the US there was a positive bond–equity correlation up until the beginning of 2000. This correlation has however decreased since then. In South Africa, however, there still remains a strong correlation given our large inflows from foreign investors.
Trend 3: A new world order will challenge globalization. As home bias is steadily being eliminated, we will see a rise in foreign investment. In the UK for example, they have no limit on foreign investment.
Trend 4: Labour shortages to drive investment in technology. There is a labour shortage in developed and mature markets. We could see automation speed up the manufacturing process to stretch the scarce labour force.
Trend 5: Response to climate change is accelerating. Net zero targets are now widespread. Some European asset owners have short, medium, and long-term targets, investing in companies that are reducing their carbon footprint. For example, Swiss RE, based in Switzerland, short-term target, is to reduce carbon intensity by 35% (listed equity and credit) by 2025.
South Africa has set the goal to reach zero emissions by 2050. In order to compete and invest on the world stage, South Africa will have to embrace change, as we are making progress on the policies that will address the crisis but we have yet to take action. It will be interesting to see if we can achieve this goal by 2050.