Ashburton Investments, the asset management arm of the FirstRand Group, says it is looking to government bonds and listed property to provide the best risk-adjusted returns on the local front for South African investors in 2020.
And the asset manager remains constructive on global equities, particularly in emerging markets.
Nico Els, multi asset strategist at Ashburton Investments, said South African government bonds with 10 year yields of around 9.2% are likely to provide investors with a very good return.
“When you consider our latest consumer inflation for November came in at 3.6%, the lowest in nine years, that’s a potential real return of over 5.5%.”
Els also likes local listed property for similar reasons.
“The sector is yielding around 9.7% after a sustained period of poor performance. At such a wide spread over current inflation rates, we think the sector looks attractive.”
He added that despite the juicy yields, there are risks. “It’s well known that South Africa faces severe fiscal challenges ahead. But we are working on the assumption that a lot of the bad news is already priced in. We are also hopeful that the February 2020 budget will demonstrate a commitment to fiscal discipline.”
Els said that he remained neutral on South African equities given the lacklustre growth expected in 2020 and 2021 although he does expect GDP growth to pick up to over 1% during the course of 2021.
South African equities (ALSI) returned 12.05% for 2019.
When it comes to global markets, Els noted that the environment remains equity friendly with low interest rates and very low yields on cash and bonds.
“We think global equities could return around 7 to 8% in 2020 and remain one of our favoured investments despite the fact the SP500 in particular has had a great year this year with returns of about 30%.
“Central banks remains accommodating and when you look at very low yields on global bonds it’s hard not to make a relative value argument in favour of equities. We don’t think, however, the US will perform as well as it did last year and therefore prefer emerging market equities for 2020.”
Els added that emerging market bonds also looked attractive.
“With yields of between 2 and 4%, this is an asset class we also like in a low yield, and sometimes negative yield, world. They are expected to perform better than global government bonds which are expected to deliver returns of between 0 and 2% next year.”
When is comes to the perennial wildcard that is the rand, Els said that it was always difficult to forecast but that he expected it to remain at similar levels in 2020 as 2019 of between R14.20 and R15.20 to the US dollar.