However, at M&G Investments we still see many good opportunities for excellent investment returns across most SA asset classes over the medium term. This view is based predominantly on the fact that, even though our asset valuations did rise last year, this was off a very cheap base and those gains lagged many other markets in terms of both their absolute level and re-rating.
Many mining companies continue to experience elevated earnings as the prices of commodities remain at high levels, at least over the near-term, helping them strengthen their balance sheets as well and enabling large dividend payments to shareholders. These high commodity prices are supportive not only for the companies mining them, but also for the wider South African economy via growth, higher tax revenues and added consumer spending.
We prefer SA equities to property counters in our portfolios due to the continued structural challenges the listed property sector faces, such as oversupply in the office space, rising interest rates and negative rental reversions. There are numerous attractive options in other sectors, including small- and medium-cap shares.
Global sovereign bonds are still offering investors negative real yields as a result of the historically deep interest rate cuts made by global central banks during the pandemic. We have reduced our global bond position further in favour of SA nominal bonds in the M&G Balanced and Inflation Plus Funds. We also hold more SA government bonds and fewer corporate bonds than usual, given that there’s little need for us to take on the additional credit risk at the current elevated yields on offer.
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