Marketing & Media trends
- 10 predictions around fintechDominique Collett
- The 4 themes for the new yearAndrew Duvenage,
- 3 wealth management trends to watch in 2021Maarten Ackerman
- 4 strategies to rethink investing in SMEsKuhle Mnisi
- Microinsurance ready to reach new heightsMarius Botha
- Finding alpha in the age of Covid-19Nema Ramkhelawan-Bhana
- Purpose or profit. It's not a choiceMike Middleton
- Shifting towards a digital - but still human - approachHenry van Deventer
Construction & Engineering trends
- 3 major trends in the commercial property space in AfricaPeter Hodgkinson
- A bright horizon for South Africa's energy landscapeBarry Bredenkamp
- Achieving developmental goals through constructionCyril Vuyani Gamede
CSI & Sustainability trends
- Time for NPOs to show their real impactKeri-Leigh Paschal
- 5 sustainability trends that will shape business in 2021Christelle Marais
- 4 trends set to continue or be re-interpreted in the NGO sectorInnocent Masayira
- Strengthening NPO skills and processesNazeema Mohamed, Feryal Domingo and Soraya Joonas
- Sustainability is key for social investment in 2021Keri-Leigh Paschal
- 4 trends in employee skills development and training you need to know for 2021Siphelele Kubheka and Desikan Naidoo
Energy & Mining trends
HR & Management trends
- 4 areas in which your business can practice its swivelFrancois Kriel
- 5G is coming. Here's what it could mean for SASamantha Naidoo
- 3 big issues demanding legal attention this yearJonathan Veeran, Nozipho Mngomezulu and Burton Phillips
Logistics & Transport trends
Marketing & Media trends
- Tech democratisation will set the tone for 2021Andrew Smit and Johan Walters
- Auction industry survival depends on going virtualJoff van Reenen
- Covid-19 drives new trends in local property marketMarcél du Toit
- A bold year for beveragesAlex Glenday
- Acceleration of digital paymentsJonathan Smit
- Safety vs sustainability - the packaging industry's key conundrumNthabiseng Motsoeneng
- The evolving e-tail landscapeVilo Trska
#BizTrends2021: Finding alpha in the age of Covid-19
In the age of the lockdown restrictions, I'm reminded of the quote by Socrates, who said that "the only true wisdom is in knowing you know nothing." By embracing that notion, we can begin to accept that fundamental economic and investment theories no longer hold.
Nema Ramkhelawan-Bhana, head of global markets research, Rand Merchant Bank.
Chief among these risks is that it will be years before GDP per capita (a measure of a country’s standard of living) inches its way back to pre-Covid levels. The loss in productive capacity has been profound. So too, the corollary rise in joblessness and unemployment claims.
The Covid-induced erosion of aggregate demand means that economic growth remains vulnerable, demanding concerted policy support to ensure that the lack of demand does not stifle the rebound in manufacturing activity. This narrative is applicable globally as countries gradually resume factory activity. Without the attendant lift in aggregate demand, a U-shaped recovery will struggle to materialise.
It’s curious then that the S&P500 index, a proxy for global equities, suggests a V-shape recovery.
Optimism though is derived more from the unprecedented fiscal and monetary policy support demanded by the abruptness and intensity of lockdowns. The unmatched monetary policy accommodation extended by the Federal Reserve, both in terms of rate cuts and quantitative easing, has permeated across global markets, lifting both equity and non-government credit, and more importantly, setting a precedent for policy intervention.
Ordinarily, a US unemployment rate of 14% – last experienced during the Great Depression – would completely upend global markets. Yet recent labour reports have been largely overlooked, as markets consider the employment data a catalyst for further funding assistance beyond the already huge $3trn in government support measures. The deteriorating credit quality of borrowers would be otherwise called into question. But, the Fed’s purchase of vast quantity of higher-grade corporate debt obligations should embolden investment in companies that are resilient to the economic contraction. Opportunities lie in the purchase of quality instruments issued by healthy companies in healthy industries.
What then of emerging markets (EMs)? In finding relative value among EMs that still offer higher real yields than their advanced counterparts, it is important to consider whether the sovereign has the requisite political will and necessary fiscal and monetary space to implement targeted economic support measures. There must be due consideration for the long-lasting effects of financial repression, especially in EMs where governments and corporates can borrow at lower, but not zero, rates.
Where the robustness of local capital markets continues to support corporate and government borrowing, but investors are sensitive to volatile pricing, alternative assets should be considered. Auxiliary debt issuance is also likely to offer opportunities as restructuring and reorganisations follow the potential wave of Covid-19 driven corporate failures.
The realisations outlined above are stark. Policy support is a necessary crutch but it’s not a panacea for growth, which will be uneven at best as further waves of infections flows through the global economy. Asset class diversification provides stability in times of intense market volatility with much of the activity being driven by opportunistic buying rather than fundamental trades. In this environment, “uncertainty is the only certainty there is and knowing how to live with insecurity is the only security” (John Allen Paulos).
About the author
Nema Ramkhelawan-Bhana is head of global markets research at Rand Merchant Bank.