Storm clouds clearing?
Investors seem split between those who believe that we should be through most of the carnage, and those who believe things could get worse, much worse. Here’s what could calm markets.
Jeremy Gardiner, Director at Ninety One
There’s no doubt that 2022 has been one of the toughest years in a very long time.
As the year rapidly draws to a close, there’s no doubt that 2022 has been one of the toughest years in a very long time. Certainly, the first 6 months in markets were tougher than most market participants had experienced in their lives. A touch of optimism filtered through in the beginning of the third quarter, as it looked as though inflation might have peaked in the US. However, inflation proved equally stubborn on the downside, resulting in markets experiencing another aggressive leg down on the back of sharply rising interest rates.
Going forward, investors seem split between those who believe that we should be through most of the carnage, and those who believe things could get worse, much worse.
The biggest swing factor remains Vladimir Putin. What his end game is, is anybody’s guess. If he escalates the war, then anything is possible, including World War III. The talk in Europe at the moment is all about winter and war. Alternatively, any resolution between Moscow and Kyiv would be very beneficial for emerging markets, including South Africa.
Whilst a long, dark, cold winter lies ahead in Europe, the weather thus far has played its part in softening the impact of higher gas prices. Hopefully, the 10.1% inflation print in September signalled the top for UK inflation, meaning that interest rates should peak during the first quarter of next year.
Similarly, inflation seems to have peaked in the US (and SA) and should peak within the next 3 to 6 months across most of the world. Rate hikes too should lessen in magnitude going forward and peak as soon as growth concerns start to trump inflation fears.
Meanwhile, in the UK, it has been a year of turmoil. On to their fourth finance minister of the year, and third prime minister, it looks like they have fortunately now found a combination that can calm markets. The pound certainly approves, and stability seems to have returned. However, Rishi Sunak has a tough job ahead as he tries to improve the mood, with a recession and higher interest rates on the way before the next election in 2024.
In China, any hope of a softer attitude towards Covid lockdowns was dashed at the recent conference as Xi Jinping, freshly reinstated for a third term, reiterated his stance on zero Covid.
South Africans are experiencing the worst load-shedding to date.
Meanwhile, back home, on top of higher inflation and interest rates, South Africans are experiencing the worst load-shedding to date. In the short term, there is unfortunately no solution. In the medium to longer term, according to the experts, if the President’s policy reforms are implemented, we can apparently fix – or at least significantly improve – our electricity situation within 2 to 3 years. Hopefully, the severity of the current crisis, plus the fact that elections are in 2 years’ time, should see the ruling party implementing the necessary reforms. If they don’t, the cost to them at the polls in 2024 will be high.
Politically, we’re just over a month away from the ANC leadership contest. At this stage it seems more than likely that the President will retain his position, as he has been nominated by most of the provinces to serve a second term. It’s the composition of the top six, however, which will be crucial. Most of the current front runners are aligned with Ramaphosa’s vision for the country, and if elected, should allow him to accelerate structural reforms.