Zisanda Gila, portfolio manager at Momentum Investments, said cash and money markets offer a decent hedge against inflation.
This advice seems to contradict advice from billionaire investor Ray Dalio who cautioned against holding cash, which he said is a guaranteed loser in a high-inflation environment.
However, Dalio added that equities might be an even worse investment in the current environment with high inflation and slow growth.
The world is currently struggling with soaring inflation which, in turn, puts pressure on consumer demand.
To contain inflation, central banks are increasing interest rates, which in turn is weighing on stock prices.
South Africa is no exception, where economic growth is under pressure, and the rand has come under pressure in recent years.
Gila said South Africa’s situation is stickier than initially anticipated, with the South African Reserve Bank (SARB) being particularly concerned with inflation.
Gila expects the SARB to maintain a hawkish tone in responding to local inflation and its upside risks.
She sees another 100 basis point hikes before year-end, but this will all depend on whether the peak in inflation is higher than expected and currency losses ground against the US dollar.
As such, she argues that cash and money markets became a useful asset class to be invested in during stressful economic times.
She added that cash and money markets offer a decent hedge against inflation over a short investment horizon.
“The money market rates closely track the steepness of a forward rate curve which is frontloading aggressive future rate hikes by the SARB,” she said.
“Cash has yielded steady returns and outperformed equities and nominal bonds in recent months.”
She added that given the current inflation environment, inflation-linked bonds also had a good run.
However, she warns that when higher inflation lingers for longer periods, it tends to erode expected cash returns in the long term.