Market Outlook: May 2020

The world was turned upside down in March as Coronavirus fears gripped global markets and the virus spread around the world.

The global funds were the greatest contributors to absolute returns, given the assistance given to them by the 30% weakening of the rand up to end of March.

We are in interesting and uncertain times, this leads to a lot of different emotions. With investments we can’t act on emotions. We need to take stock and do research about where we see opportunities.


Over the past 5 years, we have seen an unprecedented number of geopolitical events, combined with company mismanagement of capital and accounting policies to artificially boost earnings which have weighted heavily on equity returns globally and locally.

At least 70% of stocks across the major equity markets are currently in bear market territory.

The reason why equity markets are cheap, is because of economic and political uncertainty. The lack of trust in the investment performance will lead to an outflow of investment capital.

Equity markets are equally efficient at reacting to positive news. When the good news about economic growth, corona virus vaccine and earnings growth recovery sets in the attractive valuations will have been unlocked and big gains in the equity market will be seen. That is why it is so difficult to time the market.

There will be a lot of volatility during the next few months (as seen in March and April), but in the long term equities will perform well from current levels and therefore you have to be invested.


In an interest rate cutting cycle as we are experiencing at the moment, cash as an asset class struggles, as yields are moving lower. We have seen a decrease of interest rates by 2.25% in a short period of time.


The subsequent downgrade to junk status, led to the bond market having a horrible quarter. Looking through near-term risk aversion, the level of SA yields stands out relative to our peers and relative to low cash rates (which are expected to fall even further in the coming months).

Bovest Portfolios:

An underweight SA Equity position combined with an overweight SA Cash position were the main reasons for the outperformance of the portfolio over the peer group average. Active asset allocation and the global equity fund selection within the portfolio also contributed positively to the strong relative outperformance.

How we are positioning going forward? The big question is about what is the outlook on economic growth.

Bull case: There will be a V shape type Recovery. The economy will reset very quickly to previous levels.

Base Case: U shape type Recovery. The economy will struggle for a while and then recover to previous levels

Bear Case: L Case recovery. The economy will never get to the levels it was before.

Our opinion is it will be U shape type recovery. The question is how long the U Shape recovery will take, and that is uncertain at this point. There will be a lot of Volatility and although we think there can be more draw-downs in the market over the short-term, you can miss big upside if you are not invested in the market.

There are more opportunities in Global Equities, but the Rand is also very cheap relative to historic valuations. We are taking a bit off profit from Global equities and bringing allocation back to neutral levels. We are taking neutral position on Local Equities. If there is another sell off in equity markets we will increase exposure.

Where we are seeing opportunities is in Local Bonds. The sell-off of Bonds we feel was overdone after the downgrade and there can be capital increase and you good yields. Given the attractive valuations we subsequently increased our bond exposure.

Please let us know if you have any questions.

PJ Botha CA(SA), CFP ®

Leave a Comment

Your email address will not be published. Required fields are marked *