Anchor Capital Co-CIO Nolan Wapenaar told CNBC Africa that the investing landscape is complicated because of the uncertain global economic landscape, and South Africa heading for a recession.
Anchor Capital is a South African-based wealth and asset management business established in 2012 and has around R95 billion in assets under management.
Wapenaar said larger global economies like the US are unlikely to enter a recession, and – should they experience recession – it will likely be a shallow recession with little to no effect on the “man on the street”.
The US has seen multiple interest rate hikes over the past year, and the effect of these increases is being felt now. There is, therefore, pressure on consumers, but Wapenaar is not convinced there is enough pressure on the economy to enter a recession.
This is because the US’ current earnings and economic activity are still positive, and employment does not seem to be a problem. These factors make for a strong US economy that should be able to avoid or withstand a recession.
However, South Africa differs from the US in this regard. South Africa has also faced significant rate hikes in the current cycle, which, combined with the country’s power crisis, puts pressure on consumers.
Therefore, South Africa faces global and homegrown challenges, making it likely that the country will enter a recession far deeper than its global peers.
Local vs global
It is, therefore, important for South African investors to consider how and where they are investing during this time.
When it comes to the rand, Wapenaar said Anchor has been bullish on the rand in the past but has slowly become more bearish over time.
He said the company does not see a “massive propensity” for the rand to recover to fair market value.
However, for more risk-averse investors, the local high-interest rates make low-risk fixed-income investments an easy win. Wapenaar said the fixed-income environment in the country could easily deliver a 10% return on investment.
On the other hand, he advised investors looking towards risk assets to take their risk exposure abroad – although it might be too premature to tell, it is likely their “best bet”.
Regarding local asset classes, Wapenaar said Anchor is seeing less of a buy in South Africa. Compared to other emerging markets, South Africa does not currently make for an attractive investment.
While many local equities have performed well in the first quarter, Wapenaar warned that an earnings drag might be coming soon as the effects of load-shedding are increasingly being felt.
He, therefore, said investors could look abroad for earnings. Companies like Richemont, with a global client base, could be good options.
Anchor has also identified China as a potential good investment.
Wapenaar explained that China had been a bad investment case for years. The country is subject to frequent regulatory overreach, increasingly leading investors to sell off Chinese assets.
This has made China’s assets cheaper than their international peers, so they are now “almost too cheap for the risks”. Wapenaar said there is, therefore, likely more upside than downside risk.
However, he warned that interested investors must have a strong stomach: It could be a while longer before the investment sees a return, and China could still be subject to regulatory overreach.