MEETING PURPOSE
Our investment team aim to meet every week to discuss the macro environment and how this could impact our current and future portfolio construction.
KEY TAKEAWAYS
- Global equities are losing momentum. The NASDAQ is testing a critical support level (~24,500), with a break risking a drop to ~23,000. NVIDIA’s earnings report this week is a key catalyst.
- SA bonds are breaking out. The 10-year yield has decisively broken below 9.0%, signalling a major bullish trend. This is driven by strong fiscal performance and positive sentiment, including a recent S&P upgrade.
- A “rotation trade” is gaining traction. Analysts like Alpine Macro and Morgan Stanley Asset Management predict a shift from concentrated tech to unloved sectors (materials, energy, healthcare) and alternative assets (gold), driven by de-dollarization and financial repression.
- China is strategically accumulating gold. Goldman Sachs estimates China’s actual gold purchases are 7-10x higher than officially reported, explaining gold’s recent price strength and low volatility.
TOPICS
Global Market Momentum
- Global equities are losing momentum after a strong rally.
- Russell 2000: Down ~10% from its peak, showing a clear retracement.
- NASDAQ 100: Testing a critical support level at ~24,500.
- A break below risks a drop to the ~23,000 breakout level (a ~10-12% correction)
- A bounce requires a move above ~25,500 to confirm a bullish trend.
- Catalyst: NVIDIA’s earnings report this week will likely determine the NASDAQ’s direction.
Macro Themes and Rotation Trade
De-dollarization & Financial Repression: A key theme from analysts
- Rationale: Driven by US debt ($38T), political division, and a broken housing market (mortgage rates doubled).
- Fed’s Path: Must cut rates to avoid a crisis, targeting ~3% inflation (not 2%) to manage debt.
- Asset Rotation: Expect a shift from concentrated tech to unloved sectors (materials, energy, healthcare) and alternative assets (gold).
Gold as a Strategic Asset
- Thesis: Gold is the largest liquid alternative asset, making it a key hedge against debasement.
- China’s Role: Goldman Sachs estimates China’s actual gold purchases are 7-10x higher than reported, explaining gold’s price strength and low volatility.
- Market Impact: China’s strategic accumulation is making the gold market more opaque and less predictable.
South Africa: Bonds Break Out, Rand Holds Strong
- SA Bonds: The 10-year yield has decisively broken below 9.0%, signalling a major bullish trend.
- Drivers: Strong fiscal discipline, better-than-expected tax receipts and a recent S&P upgrade.
- Yield Curve: Flattening, with long-end yields falling faster than the short end.
Rand (USD/ZAR): Testing critical support at ~17.05.
- Significance: A decisive break below this level could open the path to ~16.00, a level Nedbank has also identified.
JSE Equities:
- Resources (RESI): Down ~20% from its peak, pressured by the strong Rand.
- Financials (FINI): Showing a bullish break and consolidation.
- Property (SAPY): Rallying strongly, supported by the bullish bond market.
Portfolio Positioning
- MitonOptimal Reg28 Active Beta Fund: Overweight SA equity (39% vs. 38% neutral) and short-dated bonds (10% vs. 13% neutral). Underweight EM equity (7% vs. 9% neutral) – the fund owns some SA Equity protection.
- MitonOptimal International Managed Flexible – reduced Global Equity Beta proxies – Global equity reduced from 80% to 60% with short term objective to buy back risk assets (up to 10%) using a selection of 2 existing
- managers in the portfolio (Orbis & Coronation).
Team Sentiment
- The team is cautiously optimistic, noting the market feels “divided between what’s coming and what’s been.”
- SA: Bullish, citing grassroots improvements and strong fiscal performance.
- US: Cautious on expensive tech, favouring value and quality investing.
- Orbis: Strong interest in adding to the Orbis offshore fund, as its strategy aligns with the de-dollarization and financial repression themes.
Next Steps
- Monitor NASDAQ performance following NVIDIA’s earnings report for a potential breakout or breakdown.
- Watch the USD/ZAR pair for a decisive break below ~17.05, which would confirm a stronger Rand trend.
The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.3