<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
SIMON BROWN: I\u2019m chatting now with Reza Hendrickse, who is a portfolio manager at PPS investments. Reza, I appreciate the time.<\/p>\n
Let\u2019s first look at the first quarter, which started the year off pretty much as we ended last year. EMs [emerging markets] were doing well locally. Our inflation was looking good, we were hoping for some rate cuts and equities and bonds were looking positive. That of course was up until the end of February, when things markedly changed locally and globally with the US attack on Iran.<\/p>\n
It really was a quarter that ended fundamentally different from how we came into the year.<\/p>\n
REZA HENDRICKSE: Absolutely, Simon. First, thanks so much for having me. It really was a tale of two halves, I suppose, just in the way that you described it. It feels like it was a long time ago, but that sort of optimism that I think we all came into the year with seems to be a thing of the past.<\/p>\n
Now it\u2019s all about the war and about what\u2019s going to happen to the oil price and inflation, et cetera. So it certainly is a world apart from where we came into 2026 from.<\/p>\n
Listen\/read:
Emerging stocks reclaim pre-war peak on Hormuz deal hopes, AI expectations
Year of two halves, and rate cuts next year \u2026
Global growth cools, delivering cold economic comfort for Africa<\/p>\n
SIMON BROWN: If we look at March, I suppose, and the period subsequent to that, was there much that you and your colleagues did differently to your portfolios? Was there a knee-jerk, or were portfolios resilient \u2013 and, while this was probably not expected, you kind of managed your way through it?<\/p>\n
REZA HENDRICKSE: You hit the nail on the head there, Simon. We certainly didn\u2019t knee-jerk on anything. It was actually quite hard to make sense of all of the news flow and the frequency of it, and also hard to actually make head or tail of it. So we made no knee-jerk changes.<\/p>\n
We were sort of eyeing certain levels, just in terms of when one should ultimately be adding more risk into portfolios because, if one looks at the past playbook, these types of events tend to be short lived, and they tend to be something that one wants to really lean into.<\/p>\n
Now, whether or not that ends up being the case I think is still an open question, because certainly things are not panning out the way that people might have been expecting, let\u2019s say, a month or so ago.<\/p>\n
Read:
Seesaw situation: Iran broadcasts Strait of Hormuz is shut
Seesaw Monday: Rand rebounds, JSE recovers some losses
Over R2trn JSE wipeout<\/p>\n
SIMON BROWN: I take your point, and I particularly like the idea. The sense is kind of to almost have a playbook for every scenario, so that if something just happens suddenly, something you liked but was expensive might not be so expensive anymore.<\/p>\n
I\u2019m thinking bonds, which it had a spectacular year, but we saw our 10-year out \u2013 was it almost a percent or so? Opportunity suddenly comes. We need to kind of have that shopping list ready.<\/p>\n
REZA HENDRICKSE: That\u2019s so true. If we just think back to how bonds had initially sold off, the yields came all the way from sort of eight point something to in the nines. And that was right before, I think, the 8th of April, which is when that ceasefire was initially announced.<\/p>\n
We sort of had our fingers on the trigger there, just in terms of up-weighting bonds that we had been light on in portfolios, but then the following day the bonds all of a sudden just ran because of the news of that ceasefire.<\/p>\n
SIMON BROWN: You mentioned the ceasefire. Talks are ongoing; they are providing some relief for markets. But you talk about it being short lived. It\u2019s also sort of investing in a world where we really have the \u2018unknown\u2019. We don\u2019t know how this is going to play out. We\u2019re not sure what timelines are. We know that the US wants peace. We know that Iran probably wants it as well, but that it\u2019s not going to be an easy process by any stretch.<\/p>\n
REZA HENDRICKSE: Absolutely. One can look at all these various scenarios that I think people are talking about \u2013 whether it\u2019s a kind of a muddy truce situation or a frozen conflict, et cetera, or whether it ultimately escalates. I think what is very interesting is how the markets have taken it in their stride, really.<\/p>\n
If one looks especially at the offshore equity markets, the US seems to have just taken all of this in its stride, which I think is just another thing that is quite difficult to make sense of.<\/p>\n
I know the earnings have certainly been coming through, especially with the US companies, but I think that there is still quite a lot to be worried about out there.<\/p>\n
Read: Wall Street turns to \u2018haven-first\u2019 strategy amid Iran crisis<\/p>\n
SIMON BROWN: I take the point. US markets at highs are head-scratching\u2026 Earnings aside, there were some great numbers out last week. But more an issue is surely the energy shock. Again, just so much unknown, so much out there that we don\u2019t know how is going to play out. And that has to be something that could prove to perhaps be worse than markets are currently anticipating.<\/p>\n
REZA HENDRICKSE: Yes. You mentioned the energy shock, and I think the other word that\u2019s sort of being thrown about these days is \u2018stagflation\u2019. What that means is what impact that energy shock is going to have on growth and inflation, because the combination of slower growth and higher inflation is obviously stagflation. And so we\u2019ll have to keep a close eye on that.<\/p>\n
I have seen institutions quietly just trimming their growth forecasts for 2026.<\/p>\n
But also just on the oil topic, while we are there, the other interesting point was just the UAE\u2019s decision to leave Opec, and how that was another thing that the market just took in its stride. But gosh, there\u2019s just so much out there to keep us occupied and to give us cause for concern, I think.<\/p>\n
Listen\/read:
Stagflation looms \u2013 with debt an extra wrinkle
UAE oil head says Opec exit gives ability to speed up investment
Diesel surges to R32\/l in historic price reset<\/p>\n
SIMON BROWN: Yes, that UAE decision\u2026 To your point, it would have been a giant decision under normal circumstances, but it seems the market kind of shrugged it off, as it has been doing.<\/p>\n
A last question. We came into the year with a lot of folks talking around emerging markets, thinking that they were looking more attractive from a number of perspectives against developed markets. Does that still broadly hold, although maybe there are some Ts & Cs in light of the current circumstances?<\/p>\n
REZA HENDRICKSE: I think it does still broadly hold, Simon. Part of the story there obviously was just the dollar cycle. Obviously we saw last year that the dollar fell in a heap, and everybody thought it was the end of the dollar. But look what has happened this year. The EM stuff has all started to come through once again and the rand has sort of gone, I suppose, sideways from point to point.<\/p>\n
Read: Wall Street turns gloomy on the dollar as haven demand fades<\/p>\n
But broadly speaking, if one just looks at the valuations in emerging markets versus developed markets, you would think that this is a good time to be holding more EMs than maybe you have been holding in the last couple of years, because over the next five-to-10-years you probably are going to do better in EMs versus DMs [developed markets], just given where the valuations are.<\/p>\n
SIMON BROWN: Yes. Typically some of those numbers out of the US last week were staggering, but the valuations, well, are staggering as well.<\/p>\n
We\u2019ll leave it there. Reza Hendrickse, portfolio manager at PPS Investments, I appreciate the time.<\/p>\n
#complex #forces #driving #2026s #financial #markets<\/p>\n","protected":false},"excerpt":{"rendered":"
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