Rob Enslin

After two years of focusing on inflation, financial markets are at a turning point, with the Fed expected to cut interest rates in September for the first time in over four years. The narrative has swiftly shifted to concerns around slowing growth.

As we approach the US election in November, investors should brace for potential market volatility in the fourth quarter. Despite this, the economic backdrop remains healthy, supported by resilient data, strong earnings, and the Federal Reserve’s readiness to ease policy. However, risks such as concentrated equity markets, geopolitical tensions, and issues ranging from US-China relations to cybersecurity heighten the need for well-constructed portfolios.

In this environment, optimising asset combinations is key. US mega-cap stocks continue to elevate valuations while emerging markets present attractive opportunities. Growth equities, fuelled by the AI narrative, have become expensive, making value-oriented equities more appealing. Global property valuations are compelling and should benefit from expected rate cuts. Commodities, on the other hand, remain volatile, with gold prices well supported as a hedge against a weaker dollar. Global bonds offer income and protection if growth slows, while cash-like assets provide real returns.

In South Africa, confidence has improved following the formation of the government of national unity (GNU), leading to attractive returns. Although we initially favoured SA fixed income over equities, we are now shifting to SA Inc companies, where valuations are more attractive, maintaining a positive outlook on South African assets compared with previous quarters.