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You're listening to Strictly Business
Podcast with Lindsay Williams.

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Welcome to this Cash Talk Podcast.

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With me is Lisa McLeod from 91 in Cape
Town.

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Let's get straight into currencies,
please.

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Lisa, and the mighty rand, why has it been
so mighty?

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Hi, Lindsay.

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Yeah, well, I think if you look year to
date and you look at the rand versus the

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dollar, we've actually appreciated around
about

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9% versus the dollar.

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But if you look actually versus the euro,
We've...

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We've actually done the opposite.

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We've actually depreciated by around sort
of 2.4.

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They're not necessarily poor performance
versus the euro.

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It's more or less in line with what we
would have expected in terms of interest

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rate differential.

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So it's sort of performed as it should
have.

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But I guess my point is that it's mainly
been a story of dollar weakness against

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the RAND that's really driven the RAND

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strength against the dollar this year.

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On the other hand, I mean, I guess there
are some...

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positive factors that have filtered into
the currency, despite the dollar weakness.

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So if you look at the RAND against a
basket of EM currencies, you've got to

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take the beta into account.

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But we have outperformed the last couple
of months.

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We've outperformed emerging market peers
by around 2%.

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And I think there are a couple of reasons
for that.

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I think there are a lot of positive
fundamentals for South Africa.

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We've got a prudent central bank.

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we've generally been running higher real
yields versus our peers.

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Inflation is under control.

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The outlook is positive.

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I think the change in inflation targets
also viewed as a positive one.

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And then valuations in South Africa look
attractive relative to

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SAPers. And I think the last point I just
wanted to make is in terms of trade.

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That's really been quite strong.

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You know, we've seen higher export prices,
particularly in the precious metal side.

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versus sort of lower oil prices on the
import side.

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And that's really been quite a positive
factor in driving the rant.

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And also the dollar is an incredibly
important factor.

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It's been weak.

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It's showing signs of strength again.

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But why was the initial weakness and where
do you see it going?

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Yes, if you look at from the start of this
year, you know, the weakness in the start

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of the year has really been a story of
U.S.

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growth underperformance.

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You know, it's a relative story.

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So U.S.

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policy has been undermining growth versus
the rest of the world, which was...

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which was starting to pick up, you know,
in terms of policy.

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It was, you know, tied to fiscal policy.

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It was tariffs.

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It was immigration policy.

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And I think that weakness became part of a
broader narrative around the longer-term

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flow.

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So that circular decline of the dollar,
the U.S.

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exceptionalism, and, you know, I guess
investors diversifying away from the U.S.

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I mean, this is very much obviously a
longer-term picture.

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You know, it's a much, much longer sort of
time horizon.

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But if I would say from our perspective,
we're actually a little bit more

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constructive on the dollar in the shorter
term.

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And that's really on the back of sort of a
pickup in sort of US growth momentum.

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And then us becoming a little bit more
concerned about other areas and growth,

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such as Eurozone growth, etc.

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But despite a little bit more constructive
view on the dollar in the shorter term,

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we still remain quite constructive on the
RAND for all of the reasons I've just

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chatted about.

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What about the dollar and the US policy
towards interest rates?

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How does that sort of feed down to South
Africa and also, of course, the South

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African Reserve Bank?

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And including that answer, if you would,
Lisa, your inflation outlook?

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Yeah, I mean, I think firstly, you know,
in terms of the Fed, you know,

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it's quite key in terms of what the Fed
will do and how that sort of impacts sort

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of our sob.

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I think the government shutdown has
meant...

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You know, there's been a delay in the
release of key economic data.

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So it's made it a lot more complicated for
Fed policymaking.

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And also difficult for us as a market to
kind of how do we interpret how will the

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Fed react with a lack of data.

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But in terms of what we're thinking, we're
thinking two more cuts for the Fed this

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year will likely materialize.

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And, you know, I think next year, perhaps
a little bit more has been priced than we

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would have expected.

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But in saying that.

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I think we also have to be careful around
the Lisa Cook case is coming up.

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If we have a very different Fed
composition, we could end up with a lot

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more cuts next year.

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So we need to watch a lot of these
developments.

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But how does that translate into the Saab?

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I think a faith that does.

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cut more, will give more room for the SARB
to cut going forward.

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But as long as the RAND stays strong and
not too volatile.

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In terms of inflation, you know, we've
seen a lot of downside surprises in

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inflation, particularly in August, you
know,

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that was driven by food prices.

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And our outlook is benign.

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You know, we've just actually lowered our
forecasts further.

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So we're looking for 3.3% for this year
and 3.7% for next year.

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So I think it does create a backdrop where
we've got subdued inflation.

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We've also got inflation expectations
coming down lower.

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It's a positive terms of trade and a
stronger RAND.

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These are all sort of stars that are
aligning from a cyclical perspective.

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And we think that the SAR will cut rates
further from here.

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Timing is a bit uncertain, but in the
absence of a risk event,

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I think we will get at least another 25.

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bips and red cuts between now and let's
say sort of the first quarter of next

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year.

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Okay, we've got currencies, we've got
international influences, we've got

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interest rates, inflation.

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What does all this mean for portfolios?

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What are the implications, please, Lisa?

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I think in an environment where risk
assets are not trading well, let's just

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say that's the risk, I think even in that
environment,

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the short end of the curve will be
somewhat protected from, you know, if you

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have to compare it to the long end of the
bond curve.

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So I think with a view for further rate
cuts down the line, we have continued to

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selectively add duration to the
portfolios.

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We're always mindful that there could be
better entry levels, given that there's a

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fair amount priced into the market.

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But we've just continued to sort of add
duration to the portfolios when we see

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opportunities.

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Lisa, thank you very much for your time.

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Lisa McLeod is a portfolio manager at 91
in Cape Town.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams.

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and various contributors and do not
reflect the policy, position, or opinion

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of any other agency, organization,

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employer, or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
reflective of the position of any other

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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change, revision,

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and rethinking at any time.

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please do not hold us to them in
perpetuity.
