What are Private Equity Funds and why you should be thinking about this Alternative Investment Asset?

What is a Private Equity Fund?

A Private Equity Fund is a pool of funds accumulated from institutional or private investors with the aim of acquiring or investing in private businesses that aren’t publicly listed on a stock exchange. These private businesses are invested in because they represent an opportunity for a high rate of return on the initial investment and usually come with a fixed investment horizon, usually anything from 4 to 10 years.

When the investment has reached its maturity date, it’s usually liquidated in the form of an IPO (Initial Public Offering) by listing its shares on a stock exchange, making them available for purchase by the general public or selling the business to another private equity firm or strategic buyer for a profit.

Why should you invest in Private Equity?

A Private Equity Investment is attractive as an alternative asset because in terms of performance, it gives investors and investment firms the opportunity to diversify their portfolios and take on a higher level of risk in return for the potential to earn significantly higher returns than they can through traditional investment in public companies.

Aluma’s Private Equity Funds

Aluma’s Private Equity Funds aim to protect the initial investment, maximise value, and generate superior returns for investors by strategically investing in high growth assets and niche industry opportunities.

The Aluma Private Equity Fund 1 is focused on growth and has a 5-year time horizon. The investment accrues profit over 5 years and at the maturity date, profits are distributed to investors.

The Aluma Private Equity Fund 2 provides investors with a superior monthly income. The investment has a 5-year time horizon and generates fixed dividend payments until the maturity date.

For more information on how to access investments that protect and grow your money, kindly Click here.

Weekly Market Overview | 18 March 2022

Gold

As demand for anti-risk assets tapered off this week, the yellow metal took advantage of the weaker dollar on the back of an interest rate hike on Wednesday by 25 basis points. This however comes as a surprise because gold has historically been sensitive to rate hikes from the FED as it increases the opportunity cost of holding onto the asset. The only inference one can make is that the market has remained positive and resilient because of the confident stance FED chair Jerome Powell has in the U.S economy. He noted that “the American economy is very strong and well-positioned to handle tighter monetary policy”, and seemingly the markets welcomed the central bank’s confidence in the economy despite numerous uncertainties.

With this in mind, investors should be cautious in their approach amid signs of progress between Russia and Ukraine in their ceasefire talks. This optimism over a potential diplomatic solution to the war could potentially cap the gains that gold has made as a safe-haven asset during the war, which means that buyers should manage their expectations of the price smashing above the $2 070 level before committing to a bullish outlook. Conversely, there is strong support around the $1 900 level where new buyers could enter the market as this area represents a new higher low and offers a discount for new buyers to enter the market with a view to retest the $2 070 mark and potentially surpass it or range between the new high and this newfound level of support.

U.S Markets

It’s no secret that the pandemic came with loose monetary policy that left a lot to be desired from a fiscal point of view, with record debt being added by means of several stimulus measures. However, the U.S Federal Reserve hinted on Wednesday that this would be coming to an end as it plans a more aggressive policy and plans six further interest rate hikes for 2022 to fight record-high inflation.

In terms of stocks, Wall Street indexes rose overnight to close out their biggest three-session percentage gains since November 2020. The S&P 500 and Dow Jones each rose 1.2% and the Nasdaq 1.3%. These results come on the back of Powell expressing high confidence in the economy coupled with the historical data that suggests tighter monetary policy has often been accompanied by solid gains in stocks.

European Markets

Following the rate hikes in the U.S, the Bank of England followed by raising their interest rates on Thursday by 0.75% as expected in an attempt to grapple with rising inflation. The stark difference though is that it had a much more gentle tone in its forecast in terms of future rate hikes for the remainder of the year but remained watchful as inflation is predicted to reach around 8% in April – almost a percentage point higher than previously forecast. Coupled with that, the impact of the war in Ukraine is yet to be felt hard by Europeans as energy costs are set to jump in the autumn when regulated tariffs are reset, on top of a 50% rise coming next month.

In terms of stocks, the pan-European STOXX 600 index rose by 0.2% and was on track to erase losses recorded in the month of March when fears about the Ukraine conflict pounded financial markets, while the German DAX gained 3.76% alongside the French CAC 40 index rising by 3.68% and the FTSE 100 index adding 1.75% by midweek.

Oil

On the back of information coming to light from both sides of the delegations regarding the progress of ceasefire talks and their lack of tangible progress, the oil price rose sharply and back over $100 overnight and Brent crude futures were up another 2% to $108.73 in early trade along with commodity exporters’ currencies. The effect that these talks have on the oil price is significant because if they collapse or stall, the current tight sanctions are prolonged and as such continue the disruption of oil supply in the world.

In terms of technical analysis of the chart itself, we see strong support coming in at the $92 level this week, which is in line with the fundamentals discussed above. As we head into the weekend and the fourth week of the war, we could see the price range between the key levels of $92 and the $109 level while investors wait for clarity and a way forward.

Cryptocurrency

Bitcoin remained unphased on Friday morning on the back of comments made by three European regulatory agencies warning investors that they could lose all their money. The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) “warn consumers that many crypto assets are highly risky and speculative.”

This however remains in stark contrast to what many other commentators are saying, as there is a growing consensus that the fact that nation-states are able to hold all the permissions for one to participate in the global financial system is increasingly making people seek alternative forms of finance. The sanctions on Russia’s financial system is regarded in some circles as the day Fiat-currency lost its prominence over alternatives because you cannot cancel the largest energy producer from a monetary system without massive repercussions. Arthur Hayes, the co-founder of the cryptocurrency exchange Bitmex affirms that these repercussions may push individuals and nation-states to transact and store their money in different ways, and these include Bitcoin as well as Gold.

Source:https://www.fxstreet.com/cryptocurrencies/news/bitcoin-weekly-forecast-btc-eyes-53-000-but-indicators-suggest-otherwise-202203180500

In terms of technical analysis, the consolidation continues with the formation of a bullish setup. A breakout from this formation could be the key to triggering a bull run. A break above the horizontal resistance barrier at $44,418 will trigger a move to $53,629. If this bullish setup plays out as such, the price will likely make a run for the $60,000 psychological level and perhaps the all-time high at $69,000 if bullish momentum sustains. However, if it breaks below $34 700, then we could see a bearish scenario that could test the $29 000 level.

The Optimal Play

As the U.S dollar continues its mild recovery after a four-day pullback on the back of peace talks between Russia and Ukraine, geopolitical concerns have appeared late in the week and this has caused the dollar index to bounce at the 97.70 level where strong support has been found by new buyers of the currency. This perceived increase in risk aversion since the peace talks have stalled has given strength to the Dollar in relation to a basket of other global currencies. Investors are advised to keep a keen eye on the call between President Biden and China’s Xi Jinping regarding the war in Ukraine, as this could provide greater clarity about the direction of the strength of the dollar in the current economic climate.

In terms of technical analysis, the index seems to be currently ranging between a high of 99.40 and a low of 97.67. A break above 99.29 would open the door to the 99.41 level, which is a monthly high and the dollar would potentially rally to the 99.97 level which was last tapped in May 25 2020. On the flip side, the next down barrier emerges at the 97.72 level which is the weekly low, followed by 97.71 then 97.44 which was the monthly high in January.

With that being said, investors are advised to remain watchful of the different fundamental and technical factors that are lined up as the week draws to a close and as we enter the latter half of the Month. If the Dollar rallies according to the scenarios discussed above and you would like exposure on your portfolio, the Aluma Multi-Asset Global Note is still the perfect blend of offshore exposure to diversify your portfolio adequately while providing capital protection to your investment.

Within a number of days, the Russia-Ukraine War has put significant pressure on global markets.

European Markets

As EU leaders come together in a show of force against the war, financial sanctions have rocked Russia’s economy and threatened to further fuel worldwide inflation. These sanctions were however strategically designed to avoid disrupting essential energy exports from Russia, which Europe largely relies on to power their factories, heat homes and fill gas tanks, which cushioned the surge in energy prices but did not mitigate completely against increased volatility.
In terms of Stocks, European stocks continued their slump this week as Russian Markets remained isolated from the global economy. The Central Bank of Russia kept the local stock market closed for a second day after the U.S. barred transactions with it, and as a result, the central bank went on to lift interest rates to 20% from 9.5% this week.

The Stoxx Europe 600 ended just 0.1% lower on Monday despite heavier losses early in the day, and skidded 2.4% by the end of trading on Wednesday, while the German DAX and the French CAC 40 each fell nearly 4%. In stark contrast, the U.K FTSE helped limit the damage as it leans more towards commodity producers and only lost 1.7% by Wednesday.

U.S Markets

While Wallstreet had its eyes firmly fixed on the negotiations between Russia and Ukraine, the U.S. stock indexes finished sharply higher on Wednesday, with gains gathering steam after Federal Reserve Chairman Jerome Powell outlined plans to begin dialling back the central bank’s easy-money stance to fight inflation while playing down the prospect of a larger-than-usual increase of benchmark rates in March. The central bank plans to raise its benchmark interest rate, currently in a range between 0% and 0.25%, at its meeting in two weeks. Powell said he supported a 25 basis point increase, rather than a larger 50 basis point increase.

On the back of this, the Dow Jones Industrial Average rose 596.40 points, or 1.8%, ending at 33,891.35, while the S&P 500 index climbed 80.28 points, or 1.9%, closing at 4,386.54, as each of the broad-market benchmarks sectors advanced. The Tech-heavy Nasdaq Composite Index rose 219.56 points, or 1.6%, finishing the trading day at 13,752.02, after hitting an intrasession low at 13,493.90.

Oil

As energy prices continue to surge, oil settled on $110.60 per barrel at the end of trading on Wednesday, the highest in 11 years. This will undoubtedly be felt globally at the gas pump for ordinary consumers. In response to this, The U.S. and other countries in the International Energy Agency agreed on Tuesday to release an additional 60 million barrels of oil from their emergency reserves, in an attempt to alleviate any supply shortfall caused by Russia’s invasion of Ukraine. In addition to that OPEC+, made up of the Organization of the Petroleum Exporting Countries and its allies, offered no surprises at its monthly meeting by agreeing to boost production in April by another 400,000 barrels a day in an attempt to bring rising global energy costs down.

Gold

Investors have been kept on their toes as the demand for the safe-haven yellow metal continues amid the conflict between Russia and Ukraine. At the end of the trading session on Wednesday, gold held its ground at $1,926.10 per ounce and U.S. gold futures rose 0.4% to $1,930.50. Although gold is considered a safe investment during political and economic uncertainty, rising U.S. interest rates increase the cost of holding the asset, so this becomes a double-edged sword for investors, and as peace talks between Russia and Ukraine continue, investors need to be cognizant of the reality of a better economic outlook and how it will weigh on gold. So one potential scenario is a spike towards those all-time highs of over the $2 000 mark over the next two weeks before the effect of higher interest rates and increased stability on the geopolitical front start to pull gold prices down again.

CryptoCurrency

In week two of Russia’s invasion of Ukraine, it is clear to see the wide-reaching implications of the invasion itself on the global economy, but also the reaction that nation-states have had by imposing financial sanctions on Russia. On the back of these developments, Bitcoin prices have surged as investors appear to view the volatile cryptocurrency as a safe haven for their money and Russians and Ukrainians seek alternatives to their country’s financial institutions. Evidence for this is seen in the sharp spike in the value of Bitcoin as it gained over 25% in just the past week since the beginning of the conflict.

The Optimal Play

While Moscow continues its offensive on Ukraine, there is light at the end of the tunnel as both sides indicate they are ready to resume talks to end the conflict. The U.N. General Assembly also voted on Wednesday to condemn Russia’s Ukraine invasion while calling for an immediate end to the clashes.

However, investors still remain cautious amid these developments, and currently, the sentiment is still leaning towards Dollar exposure as a hedge against the current geopolitical instability. In this regard, Aluma’s Listed Global Note is an ideal investment vehicle to give your portfolio the desired offshore Dollar exposure that is required to protect and grow your capital as the demand for its safe-haven status continues.

The 2022 Budget Speech and how it affects your retirement and investments.

One can liken The minister’s speech to the classic game of Jenga, where the focus was on preventing the tower from falling apart but still strategically removing certain blocks from the structure. Essentially it was a budget that was designed to strike a balance between keeping money in the pockets of South Africans while still supporting economic growth.

Cautiously Optimistic

While this might come as a surprise to most, the state of South Africa’s economy is actually far less hostile than when the former finance minister Tito Mboweni read his version of the Budget Speech over a year ago after the world economy went into a recession because of the Covid 19 pandemic. One of the key drivers of this was a spike in commodity prices on the back of the economic rebound, which benefited South Africa because it resulted in a much high than anticipated mining tax revenue, and this gave the government much-needed breathing space on the fiscal front.

Overall The estimated tax revenue collection for 2021/2022 is R1.55 trillion, which is R182 billion more than last year’s estimate. This is mostly as mentioned from the mining sector, but personal income tax and value-added tax also played a role in this increase.

Investments

In the main, there aren’t any taxation increases on the cards in terms of investments this year. This comes as a welcome reprieve because the two taxes that hit investors the hardest were dividend withholding tax and capital gains tax (CGT). The capital gains tax inclusion rate for individuals and special trusts remains at 40%, and for other taxpayers at 80%.

Dividends tax remains at 20% on dividends paid by resident and non-resident companies for shares listed on the JSE. Foreign dividends received by individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20%.

Retirement lump sum taxation

There weren’t any changes announced in terms of retirement fund contributions. The first R500 000 of a retirement lump sum remains tax-free. The maximum retirement fund contribution an individual can make is still limited to 27.5% of taxable income. It is further limited to R 350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. The amounts contributed to pension funds, provident funds and retirement annuities can still be deducted within limits during the course of a tax year to reduce tax liability, but smart planning and execution can put money back into your pocket.

Retirement funds will have more flexibility to allocate a greater % offshore
While retirement funds have the most attractive incentives, they have been heavily denigrated for their rigidity in terms of where funds can allocate their capital. Under current legislation, only 30% of the portfolio can be invested offshore, but going forward there are plans in place to raise that cap to 35%. Coupled with this, the treasury is drafting regulations that will allow investors to access a portion of their retirement portfolio before their retirement age in cases of emergency.

Value Added Tax

VAT is charged on the supply of goods and services provided by registered vendors. It remains unchanged at 15%. Alongside ‘sin tax’, this is another tool used by the government to guide the population towards reduced consumption and more saving and investment.

Estate Duty

Estate duty is applied on the property of a deceased South African as well as property belonging to a non-resident of South Africa. Currently, the taxable estate duty is 20% on an estate worth less than R30 million and if it is above that benchmark it is 25%. The minister suggested that no changes would be effected in the 2022 budget.

Conclusion

In conclusion, not much has changed in the financial landscape apart from the changes made in sin tax, therefore Investments and retirement funds held with Aluma will not be affected by the latest budget speech.

However, the fact that there haven’t been any significant escalations in taxation, coupled with personal tax relief through an adjustment in personal income tax brackets and rebates means that individuals should see a net increase in their take-home pay, which leaves more money available to invest. Overall, this year’s budget speech provides an opportune moment to contact Aluma to revise your financial wellness and investments to see where this additional capital can be deployed and go to work for you.

As Europe sees its biggest conflict since 1945, what impact does it have on the global financial markets?

Traditional Safe-havens like The U.S Dollar, Gold and treasury bonds are seeing a spike, as risk assets such as stocks continue to tumble. Ultimately, no one knows what this invasion means for everything from monetary policies to global energy prices and currency strengths, nevertheless, investors need to brace for a short period of volatility in the global economic market.

U.S Markets

The showdown in Eastern Europe has an immediate and major influence on the U.S market, although America imports very little from Russia. The reason for this, is that it all ties back to Oil and Gas, as Russia produces 10% of the global demand, therefore a significant change in the supply can affect Americans directly in the form of soaring energy, fuel and food prices, coupled with the high level of inflation that is currently thematic in all global markets.

In terms of the stock market, The Dow closed higher, rising 91 points to 33,223. That swing came after the index had plunged more than 800 points in early trading. Other major U.S. stock indices also recovered their footing, with the S&P 500 rising 1.5% by the close of trading and the tech-heavy Nasdaq jumping 3.3%.

The Dollar is set to strengthen as we see a continued sell-off in risky asset classes like stocks and cryptocurrencies as investors turn to buy gold and the US dollar which are seen as safer investments at times of uncertainty. Human psychology dictates that investors will always seek asset protection as opposed to taking on any risk to their portfolios for a short term gain.

European Markets

In the midst of the largest conflict since World War II, European stock markets tumbled into a sea of red late this week. In London, investors who have money in UK equities were squeezed as the FTSE 100 (FTSE) fell 3.8% on Thursday, while the French CAC (FCHI) also tumbled 3.8% and the DAX (GDAXI) was trading 4% lower in Germany. Market analysts are ringing the alarm and affirming that it isn’t an exaggeration to admit that Europe is at its most dangerous and uncertain juncture in a very long time, which is prompting a mass sell-off in major stocks.

Oil

Commodity markets have also been reacting to the current geopolitical tensions as Brent futures topped $100 per barrel for the first time since 2014, and this will no doubt be felt by the consumer at the filling station. In a South African context, Russia is a key producer of crude oil and the market is nervous that oil supplies will be disrupted because Oil is South Africa’s biggest import item, so the immediate impact on consumers’ pockets will be higher petrol, energy as well as food prices.

Petrol looked set for a hike of around R1.25 a litre in the first week of March. This would push the price of 95 octane petrol in Gauteng to a record high of above R21. However, the petrol price hike is now bound to be even steeper due to the latest oil run, as well as a sharp shock to the rand on Thursday.

Gold

As investors move their money away from risk assets and emerging markets amid the current geopolitical tensions, we saw gold going on a rally along with other safe havens like the Dollar. The price of the yellow metal jumped just over 2% yesterday as Russia invaded Ukraine, which pushed the price to $1 937.82, the highest in over a year since January 2021. This month alone, gold has risen by 8% on the back of these tensions before they escalated into troops on the ground, and it will no doubt continue to rise and potentially break above the $2 000 mark because in times of economic uncertainty gold is considered a safe store of value.

CryptoCurrency

Meanwhile, as investors continue to withdraw from risk assets, the prices of major cryptocurrencies continued their retreat this week as the Russia-Ukraine crisis boiled over and crypto buyers and other investors pulled out of emerging markets and fled to safer havens like the U.S. dollar and gold. Similar to stocks, Bitcoin took a hit in the early trading session on Thursday but recovered later in the day as the price for the cryptocurrency increased by 3.2%, which shows its resilience in the face of other risk assets taking a plunge while it remains buoyant as a reliable store of value for investors.

The Optimal Play

The impulsive thing would be to sell into a falling market, but this is the polar opposite of what a seasoned and calm investor would do. When the aim is to buy low, the approach that best serves the most successful investors is being calm while everyone else runs around in a panic.

However, investors that have offshore exposure on their portfolio through Aluma’s Global Note will be on the better side of things as they watch the Dollar continue to strengthen against the basket of global currencies because of its safe-haven status amid the global uncertainties the geopolitical landscape is currently presenting. If you are looking to spread your risk you can contact Aluma today to diversify your portfolio and gain Dollar exposure through Aluma’s listed Global Note.

Weekly Market Overview | 09 February 2022

South African market overview

South African stocks hit a two week high this week on the back of optimism caused by substantial gains in commodity prices. This exuberance is set to persist as market analysts forecast that the global demand for commodities will increase and remain at high levels for the remainder of the year ahead, which is great news for the Rand and the economy because the South African economy is largely driven by commodities.

As a result the JSE All Share Index broke above 76 000 points this week, gaining a total of 1,3% by the end of the midweek trading day. Minning and Metals companies were the main drivers of these gains with South32 gaining 4,5%, AngloGold Ashanti gaining 3,49% and Sibanye-Stillwater closing with a 1.61% gain.

Brent Crude Oil

The Price of Brent Crude Oil was hovering above the $91 mark per barrel by midweek. This pullback from a seven-year high comes as investors turn their attention to the current ongoing bilateral talks between Iran and The U.S. If a nuclear deal is struck between the two nations it could lead to the resumption of official crude exports from the Persian Gulf producer, which would mean more supply entering the market and this will have a significant effect on the demand level as well as pricing.

Gold

The yellow metal is poised for a significant move this week ahead of U.S inflation data that could shed some light on the positioning of the Federal Reserve’s Monetary policy. The Consumer price index is expected to have risen by 0.5%, and if this is how the numbers play out, it will constitute a 7.3% annual rise and this would be the highest increase since 1982 according to a Reuters study. If all goes as is forecast, then this will make Gold an even more attractive hedge against inflation, but on the flip side, if the trend of interest rate hikes continues amongst the world central banks, it will effectively nullify this hedge. Our recommendation is the “wait and see” approach before making any decisions.

Asian Market overview

Asian stocks were buoyant and ended mostly higher on Thursday on the back of a Tech-fueled rally from the U.S session. Chinese shares were the big movers, with upbeat earnings from Honda motors offering much-needed impetus as shares ended in positive territory after reports of state-backed funds intervening in the stock market. The Benchmark Shanghai Composite index rose by 0.17% and the Hang Seng Index gained 0.38% by the end of the trading day. Markets are however muted as investors await the release of U.S consumer price data for further analysis of inflation.

U.S Market overview

U.S markets have found their bullish sentiment again after record losses sustained in the previous week and in January. The Tech-heavy Nasdaq saw the biggest gains this week with a more than 2% jump at the end of Thursday’s trading day, which pushes the index more than 8% above its low in the previous month.

This comes as stock futures wavered and bond yields rose ahead of the inflation data that is expected to be released this week, which is already running at its highest in 40 years. A study found that the current level of inflation is costing the average U.S citizen roughly $250 every month or R 3 774-84.

The key report coming out that all investors are watching is the Core CPI Report and this is expected to put a bit of pressure on the U.S Federal Reserve, policymakers as well as the global economic environment because ultimately what happens to the dollar affects the rest of the world.

European Market overview

The European stock market traded higher from midweek as major corporate earnings results were released. The German DAX traded 1.4% higher while the French CAC 40 climbed 1.6% and the UK’s FTSE rose by 0.7%.

The sentiment from investors is still tentative while they keep their eyes on the situation between Ukraine and Russia. The rising tensions at the Ukraine border are the main concerns in the short term as worries that an invasion from Russia could impact the economic stability of the whole region.

While one eye is looking at Geopolitical factors the other will be fixed on the release of key inflation data from the U.S which is anticipated to cement the likelihood that the FED will raise interest rates in March.

Private Equity Funds

The South African economy is undoubtedly the biggest and most diverse in the Southern African Region, and as such, it continues to appeal to a vast amount of private equity investors that are looking to acquire high-quality assets that have become significantly more attractive because of the reduced pricing following the Covid-19 pandemic. Collaboration with strong management teams and the formulation of a good exit strategy are going to be the key drivers in the post-pandemic economic recovery phase that we are entering and will ensure that private equity funds keep being resilient and outperform other asset classes.

According to a study by Deloitte, asset valuations have been adversely affected due to the current economic environment, and this is providing a plethora of opportunities for investors in South Africa to purchase high-quality assets at attractive prices, including new innovative opportunities to deploy capital effectively with the onset of the fourth industrial revolution (4IR).

Weekly Market Overview | 04 February 2022

They say January is the toughest month in the financial world, but this year, volatility was the theme and it’s largely been driven by policy uncertainty in response to the temporary supply chain bottlenecks caused by the pent up demand following the decreased production levels during the various levels of the Covid-19 pandemic.

Global Markets take a hit

The beginning of 2022 finally saw the pullback that Global markets had been forecasting since the second half of 2021. U.S stocks were hit the most as we saw the Dow Jones, S&P 500 as well as the NASDAQ Composite Index approach bear market territory with a deep correction.

At its worst, the mostly tech-driven stock (NASDAQ) was down roughly 17% from the previous month, as compared to data from last year where all three indexes were sitting at an 18% gain.

This comes as a historic loss was seen this week when Facebook’s $237.6 billion fall set the record for the biggest one-day value drop in stock market history. The previous record for the amount of market capitalization lost in one day was Apple’s $182 billion loss in September 2020. While this may set off the alarm bell in trigger-happy investors’ minds, the seasoned professional knows that this is the time to wait and see.

The Culprit – Inflation

Whilst earnings season, Omicron as well as geopolitical tensions between Russia and Ukraine have added a lot of uncertainty and volatility to the global financial markets, it is no secret that inflation is the main culprit as well as the response that global monetary policymakers have laid out. The nuance though in this particular instance, is that this round of Inflation is driven by supply-chain bottlenecks and constraints, as a consequence of the huge shift in demand as we come out of the pandemic, not an economy that is in the ICU – so the traditional policy playbook will not apply here.

Investors and portfolio managers have had the task of preempting what effect these measures will have on the economy, while they synthesize earnings results from the final quarter of 2021 to conclude if indeed the current level of inflation we are seeing is short-term or if it will be sustained. In response, global monetary bodies are expected to make several rate hikes this year with the first being forecast for March, but what impact does this have on people on the ground and for the economy?

Well, the lower the interest rate, the more eager people are to borrow money from financial institutions to make big purchases, such as houses or cars, and on the flip side, higher interest rates mean that consumers don’t have as much disposable income and must cut back on spending. This is how inflation is rolled back, higher interest rates mean higher borrowing costs, which influences people to spend less money, which then makes the demand for goods and services taper off, and ultimately causes inflation to fall.

How to position for February

In Aluma’s view, a good portfolio is one that still stands strong even when the markets don’t. As opposed to exposing your capital to the volatility and short-term unknown variables that constitute the current economic climate, it would serve you better as an investor to sit tight and focus on building a portfolio that can go the distance and withstand the turbulence we are currently seeing.

While this is sound behaviour from a long term investment perspective, there are still ample opportunities for short term gains, and February is presenting the opportunity to take advantage of the pullback by “buying the dip” as its referred to in the new age of short term investing styles.

However, it’s pertinent to mention that it matters not which end of the spectrum you are on as an investor, focusing on diversification to spread your risk and creating a balanced portfolio is still one of the best investment approaches to take even in these uncertain times.

The Optimal Play

You could consider buying the dip or re-balancing your portfolio for the long haul.
Buying the dip is more for short term gains and can be taken advantage of with the proper risk management and selection of which markets to enter. But one must be cognizant of the increased volatility caused by the confusion over the supply-driven macro environment.

However, if you don’t have an appetite for volatility and uncertainty and simply want to take the “wait and see” approach while you re-balance your portfolio, you can access various investment vehicles at www.aluma.co.za to drive this measured long-term approach and it can be tailored to your risk appetite paired with built-in security for your investment.

Weekly Market Overview | 22 January 2022

With the 2022 World Economic Forum having taken place last week, various recurring themes were cited by the plethora of speakers that were present for the virtual meeting. Key concerns were raised by bankers, economic policymakers and world leaders. Chief among those was Covid-19 in relation to the global economic recovery, the threat of rising inflation and higher interest rates in the global economy, as well as investments in green technology.

The continued rising interest rate fears caused by the breakdown in the global supply chain pushed global stocks to a significant decline this week. The S&P 500 index, as well as the Nasdaq composite index, were two of the major indices hit this week, with the former seeing its biggest decline in more than 14 months and the latter seeing its biggest weekly drop since the beginning of the pandemic. However, these aren’t the only casualties, as the continued global shortage of semiconductors weighs heavily on automotive and tech stocks.

The sheer demand for the semiconductors that power cars, electronics and electrical grids have continued to stoke inflation and could cause more factory shutdowns globally as the demand far outweighs the current supply, even with global chip makers approaching their maximum production capacity. Financial services shares also took a major hit as well with financial giants JPMorgan Chase and Goldman Sachs feeling the brunt of the decline.

In response to the current economic climate and the concerns that the rising trajectory of inflation might last longer than previously forecast, coupled with surging energy costs and signs that wage demands are rising, there is increasing speculation that the United States Federal Reserve, the European Central Bank, the Bank of England, as well as other global monetary policy bodies, will move more aggressively to curb this by tightening their monetary policy and raising their interest rates significantly more than historical rate hikes in recent times.

In terms of energy and decarbonization, the focus on oil growth has been minimal and as a result, the higher oil prices that we are currently seeing are consistent with a global push for investment in green energy as most companies are essentially strong-armed into embracing a carbon budget that limits investment in oil and gas development. The providers of capital are bullish on decarbonization but the global policymakers are lagging behind in terms of agreeing on a global framework to implement this, which is causing this period of volatility, uncertainty and historically high oil prices.

This is what has led to higher hurdle rates and the high cost of capital for expansion projects and this is prolonging the up-cycle that we are seeing in the global energy costs because it is creating a decrease in the supply, while the demand has not tapered off. As a result, on an international level, oil companies and businesses that are in the carbon energy sector have focused less on growth and more on the development of low-carbon offshoots of their businesses. This phenomenon is not just affecting investment portfolio’s that are heavy on oil and gas but sectors like shipping, steel, and cement are all seeing 40% less investment compared to recent history. All of these global sectors which are carbon-intensive are seeing significant pressure because of the policy uncertainty, which suggests higher prices for energy into the long-term future.

On a lighter note, the global cases of Covid-19 continue to surge largely due to the Omicron variant, but the decline in the severity of illness and decreased hospitalisations have been the precursor to most countries beginning to relax their restrictions on movement and economic activity. This has been seen in most European countries as the U.K and France lead the way in getting back to some semblance of normality. This has been the catalyst for some of the exuberance we are seeing from investors as they position their portfolios for the global economy to recover in the wake of the delays caused by the new variant and supply chain bottlenecks.

Copyright © Aluma Capital (Pty) Ltd | All rights reserved