Johannesburg – As the spotlight turns to fiscal policies in developed markets, global equities have become a more favourable asset class compared to government bonds.
This is according to the quarterly market and economic review by analysts Sanisha Packirisamy and Herman van Papendorp of Momentum Investments (MMI).
“We have a strong preference for global equities over global bonds and cash in our portfolios as we enter 2017.”
The uncertainty around policy measures taken by US President-elect Donald Trump, the upcoming European elections and the start of Brexit processes all favour global equities over bonds.
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According to MMI, global equities are also expected to benefit from reflation policies. This will ensure asset growth and better income flows than bonds and cash.
However, rising inflation, fiscal expansion and the end of quantitative easing would be negative for global bonds.
Local equity market
South Africa’s gold and platinum exchange traded funds were the worst performing asset classes during the fourth quarter of 2016. This was mainly as a result of the US election outcomes, which impacted US growth and strengthened the dollar against emerging market currencies.
Cash, listed property and bonds however performed better. The improving inflation and interest rate outlook contributed to the improvement in property and bonds.
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The depreciation of the currency during the year is expected to add to the returns of global assets owned by South African investors. There may be “decent future returns” for equities.
Local bonds are still expected to deliver attractive returns.
Listed property has also improved future return prospects, mainly due to an improved domestic bond market outlook and a better expected domestic growth performance.