Q4 asset allocation: Where to find the value

As the South African stock market continues to show signs of strength and resilience, investors are reevaluating their asset allocation strategies for the fourth quarter of the year. Peter Armitage, CEO & Co-CIO of Anchor Capital, shared his insights on the current market dynamics in a recent interview with CNBC Africa. Armitage emphasized that the confluence of factors such as declining interest rates, the new Government of National Unity, load shedding challenges, and the two-part retirement system has created a favorable environment for South African equity assets. Despite global economic uncertainties, South African equities have proven to be a lucrative investment option, with the mining sector now joining the rally. One of the key takeaways from the interview was the significant interest rate differentials between South Africa and the US, making local investments more attractive for both domestic and foreign investors. Armitage projected a return of over 15% from the South African market in the next 12 months, compared to just 7% for global equities. When it comes to asset allocation, Armitage advised investors to consider allocating a significant portion of their portfolio to South African assets, both in equities and fixed income. With local bonds already delivering impressive returns, the disparity in bond yields between South Africa and the US further supports the case for investing in the local market. Despite the global market conditions showing signs of overheating, South African assets continue to offer substantial growth opportunities. However, Armitage also highlighted the need for caution, especially in sectors like resources, citing structural issues in China that could impact global markets. As Chinese property prices decline and retail sales remain sluggish, concerns about growth prospects emerge, signaling a potential shift in market dynamics. The recent rate cuts by the Federal Reserve have further amplified the attractiveness of local fixed income assets, as South Africa aims to capitalize on the interest rate differentials to bolster its economic prospects. While the strengthening rand may prompt some investors to consider diversifying offshore, Armitage cautioned against overlooking valuation risks in the global equity markets. In conclusion, Armitage expressed optimism about the growth potential of the South African economy, emphasizing the importance of long-term investment perspectives amidst short-term fluctuations. With the ongoing positive momentum in the South African markets, investors are advised to stay vigilant and consider the evolving dynamics of the global economic landscape. As the fourth quarter unfolds, the performance of South African assets is expected to remain robust, offering investors a compelling opportunity to capitalize on the country's economic resurgence.