Let's first review recent asset class performances:
The last decade has been filled with event risks including the Great Financial Crisis, Grexit, Chinese shadow debt defaults, US/China trade wars, Brexit and most recently Covid-19. The world has muddled through the various events by lowering interest rates and using creative monetary policy. Covid-19 changed that, along with the largest fiscal support in two decades. 2021 will see the impacts of the fiscal spend, alongside a continuation of $4 trillion in quantitative easing, as the global economy recovers strongly on the back of vaccine rollouts. At the same time global trade is likely to rise due to a more collaborative US foreign policy and falling trade costs because of low oil prices and low US interest rates.
Our 2021 Asset Allocation Views:
LOCAL:
SA Equity [Neutral position]: with PEs at +-15, the domestic equity market seems to be not excessively cheap or expensive. There was a large dispersion in returns between sectors though, which now creates opportunities. Economic conditions are improving, but there are challenges. Biden's economic stimulus will support global equity markets.
Banks [Overweight]: a valuation/recovery play. Banks are over sold on COVID fears.
Consumer Goods [Overweight]: The same as financials, a valuation/recovery play. It is over sold on COVID fears, however not to the same extent as banks.
Consumer Services [Neutral position].
Mines [Underweight]: Elevated gold price, governance issues, extreme rally past 5 years.
Other Basic Materials [Neutral position]: SASOL does create some opportunities to actively trade its shares.
Other Financials [Neutral position].
Technology [Neutral position].
Domestic Property [Underweight]: Even after severe corrections over the past years, it still does not look attractive. Over supply and overtraded.
SA Bonds [Overweight]: Yield curve very attractive.
Other SA Fixed Income [Overweight]: Credit offering value, especially against poor cash yields.
SA Cash [Underweight]: Not worth the yield. Opportunity cost.
OFFSHORE:
DM Equity [Neutral position]: Dominated by US, where the bull market is getting a bit long in the tooth. However, more QE can drive EQ markets further so its more a question of which region to invest in, rather than the asset class.
US Market [Underweight]: See above.
Europe [Overweight]: Value abound.
EM Equity [Overweight]: Stimulus, relative valuation, China.
China [Overweight]: The big growth story, plus Biden positive.
India [Neutral position]: Great long term dynamics, but well known and trades at high valuations at times. Worth holding, but time buys patiently.
Rest of Asia [Underweight]: South East Asia always a good play on Chinese growth. We have massive china exposure already so might be best to diversify elsewhere, or reallocate some china to proxies?
South America [Underweight]: Bond markets too risky. Equities worth looking at specific countries, amid our relative exposures through EM trackers. Essentially we are positioned in favor of China, and for good reason.
Rest of Africa [Underweight]: Worth considering - Diversification/growth opportunities. Highly volatile in liquidity squeezes, so only appropriate for higher risk portfolios.
Commodities [Underweight]: Would like to attain gold and silver in funds where we don't hold it for diversification, but not at current Gold price, still pricing in fear. Will buy closer to $1200 per ounce.
Fixed Income [Underweight]: No yield.
Global Property [Neutral position]: Not attractive at all, only for diversification.