Bruce Whitfield 00:06
Well, for the second time in history, the JSE above 79,000 on the day, and for the second time this year, a slight pullback. Peter Brooke is Portfolio Manager at the Old Mutual Investment Group on the line to us from Cape Town. And it's been a bit of a sparkly start to the year, Peter Brooke. Good evening.
Peter Brooke 00:24
That's right. Good evening. It's been very pleasant to see markets up for the year. But today, I thought it was a bit of a dull day. Not much happened. Obviously, the US not being open, closing down, but fairly flat markets today.
Bruce Whitfield 00:44
And what is your sense in terms of where we are headed? There are so many variables and so much uncertainty. But we seem to have knocked the head on inflation, interest rates will keep going up, Eurozone was saying today they'll keep going up, US has suggested rates will keep going up. I think the South African Central Bank, the Reserve Bank, will raise rates two or three more times before being satisfied that they've managed to nip inflation in the bud completely. What's your reading?
Peter Brooke 01:13
So, the easy forecast is that this coming year will be better than last year. And that's because last year was a complete disaster in terms of global markets. So, valuations are now more attractive. Do you remember the sort of expression? TINA, "There Is No Alternative"?
Bruce Whitfield 01:29
Yep.
Peter Brooke 01:30
There's actually quite a lot of alternatives now. So, when we had a situation where vast swathes of the world's bond markets were pricing in negative return, so guaranteeing that you'd lose your money. That's now... that's gone. There's nothing left of that. So actually, the global cost of capital is repriced, that's good news. Inflation is peaking, that means that bond yields are probably at a high, therefore, that cost of capital pressure is no longer there. The one problem in all of this is that, obviously, the economy's going to be a little bit slower, as a result of those interest rate hikes. And as a result of that, profits are going to also be under pressure.
Bruce Whitfield 02:13
And some speculation and some fairly widespread speculation of a short and not very deep, but a recession nevertheless, and markets seem to be tentative on that particular front.
Peter Brooke 02:24
Yes, so there has been some good news though, because if you... we very much have the view that we're living in a dislocated world economy. So, you've got the different parts firing in different levels. So, you've got China within a recession, terrible property market, all the regulations that were taking place, now they're coming out. And there we've got some good news. And the good news is that they have moved away from their zero-Covid policy. So, that'll be improving faster than perhaps the market might have expected. The other good news is that the European winter has been a lot milder, which has meant that energy prices have dropped. So, energy prices falling is good news for lower inflation, but also putting money back in consumer's pockets. So, it's the opposite of the stagflationary shock, it helps out growth and it helps out inflation. And the US, look, it should slow down because they've hiked rates a lot. But the underlying... the US is always going to be sort of marginal, more of a... you could probably 50/50 on a recession, but definitely a profits recession, because margins are so high there.
Bruce Whitfield 03:41
Ja, and so the outlook then for 2023 is one of quite strong optimism, not even cautious optimism. A high degree of optimism.
Peter Brooke 03:51
[Laughs] I wouldn't put it that way.
Bruce Whitfield 03:55
Some degree of optimism, some optimism.
Peter Brooke 03:59
Some optimism. Well, let's settle for that. We'll take the lowest bidder.
Bruce Whitfield 04:04
All right, we'll take some. Thank you, Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group, on the line to us this evening from Cape Town.