The following table illustrates our house view on different asset classes. This view is based on our estimate of the risk and return properties of each asset class in question. As individual Anchor portfolios have specific strategies and distinct risk profiles, they may differ from the more generic house view illustrated here.
The most recent quarter (3Q24) was dominated by the overwhelmingly positive response to the start of the interest rate-cutting cycle both domestically and abroad. At the same time, the South African Government of National Unity (GNU) continues to hold and appears to be delivering some benefits for the country. This provided a solid boost for investments—a stellar outcome for almost all asset classes. Our return expectations for the various asset classes have shifted to reflect different asset starting prices, a more positive outlook for South Africa (SA) and the global economy, and the continuation of the interest rate-cutting cycle.
Figure 1 below highlights the US dollar return outlook for the various global asset classes. The bar in Figure 1 represents the reasonable range of possible outcomes, with the dots representing our estimate of the outcome in the various scenarios. We think global equities (particularly US equities) are likely to perform best; however, downside risks are growing. Global bonds also remain compelling. On an absolute level, we think that returns will be slightly lower going forward while the market absorbs the higher starting prices.
Figure 3 below highlights the rand return outlook for several domestic asset classes. The bar represents the reasonable range of possible outcomes, with the dots representing our estimate of the outcome under various scenarios. From a domestic perspective, we believe that there is more opportunity ahead. We anticipate declining interest rates, improving sentiment, improved governance, and slightly positive steps being taken by the government. There is still a significant political risk premium in the price of domestic assets, and we believe the country may become attractive to foreign investors if the reform narrative takes hold in time to come. We are optimistic that domestic factors will continue improving as we progress into 2024 and 2025.
