The CEO and founder of SA’s biggest asset manager Ninety One, Hendrik du Toit, has hailed the monetary policy management skills of the SA Reserve Bank, saying the central bank was ahead of the curve on interest rates which led to market stability.
Du Toit said the flipside of the “cheap money” that flowed from record low interest rates and stimulus packages by central banks after the outbreak of Covid-19 was a headwind for the industry.
“It has been very tough trading conditions, particularly outside SA where interest rates have gone up 22 times from the lowest level. We had the lowest interest rates post Covid in the world and the most stimulus from central banks. When interest rates went up to record highs, risk owners reduced their risk, and that means less business for us,” Du Toit said.
“A lot of economists were talking about a 3% peak, now it has gone all the way to 5% and might still go up. In the last six months, people who were willing to commit to risk, particularly to emerging markets, are holding on to their money.
“In SA, we are doing pretty well because the market was more stable. In fact, Lesetja Kganyago and the SARB [SA Reserve Bank] should get credit that they were ahead of the curve and had great anticipation to lift interest rates by far less than other central banks,” he said.
The US Federal Reserve has been in an aggressive push to bring down soaring inflation from a peak of more than 9% last year in June closer to its target of 2%.
From March 2022 to July 2023, the Fed enacted a run of 11 rate hikes to take the Fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%. The Bank of England has equally been aggressive in hiking interest rates over the past year in response to high inflation, which peaked at 11.1% a year ago, well above the 2% target.
Ninety One reported a 5% drop in profit for the six months to end-September as the volatility in global financial markets triggered net outflows.
Net outflows from equities, fixed income and multi-asset classes accelerated to £4.2bn during the reporting period from £3.2bn a year earlier, driven mostly by institutional clients, which saw assets under management shrinking to £123bn from £132.3bn.
Basic headline earnings per share were down 5% to 8.9p, while the interim dividend was cut by 9% to 5.9p.
Du Toit said rising interest rates and increased geopolitical uncertainty have contributed to continued investor caution.
“Equity markets have been driven by narrow sectoral and geographic performance. These factors have dampened investor appetite for emerging markets and public equities in general. We expect these conditions to remain for the rest of the financial year,” he said.
Equities markets remain exceptionally volatile, driven largely by uncertainty regarding the trajectory of US interest rates. US core inflation, which excludes volatile food and energy, remains sticky at 4%, double the Fed’s 2% target range.
Fed chair Jerome Powell has said the future policy path would be guided by the totality of high-frequency data, leading to big swings in sentiment from the release of one data point to the next as investors second-guess a likely scenario.
Emerging markets, which are invariably treated as a homogeneous risky asset class by global investors, have borne the brunt of that volatility, as reflected by months-long weakness in the rand/dollar exchange before the recent rebound.
While the JSE is marginally higher so far this year it has been propped up by a handful of shares, belying the deep sell-off in the resource market in particular, save for gold shares. By contrast, Wall Street has been the main bright spot among equity markets, though it has been driven by megacap technology stocks that are riding on the artificial intelligence (AI) wave.
A US policy pivot could further weaken the dollar, thus improving global risk appetite, which will be beneficial to SA and other emerging markets.
Du Toit said the company remains committed to the North America market despite a slow pickup in business coming through.
“We have 50 people in the US waiting and preparing to capture some of the international flows. It has started already, but in a very small way ... we will be competing for substantial assets,” he said.
“The biggest disappointment for us is that five years ago we were ready, locked and loaded to take an enormous amount of capital from the West into China. That has dried up completely because of geopolitics and interest rates dynamics. That might come back, but it is going to take a long time ... it’s an area we will continue to invest in because China is such an important part of the emerging market universe.”
Ninety One shares were down 0.63% at R39.47 at 1.10pm on the JSE.
Update: November 15 2023
This story has been updated with new information throughout.
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