JIMMY MOYAHA: I’m chatting now with Rhandzo Mukansi from Futuregrowth [Asset Management], the concept of stagflation. Now it is a very technical factor. There are rather a lot of technical definitions round it. We know that the broad definitions embrace issues round excessive inflation coupled with low financial development – and that’s sometimes sprinkled with excessive unemployment, which sounds very very like South Africa on a standard day.
Rhandzo, your ideas on this? What’s stagflation for the primary South African on the market? Explain it in easy English.
RHANDZO MUKANSI: Good morning, Jimmy. Thank you very a lot. I believe you set it properly. Stagflation is mostly a interval marked by weak or weakening macroeconomic development and growing or excessive inflation. And then, as you stated, [it is] typically coupled with heightened unemployment as properly. So not too dissimilar to what we’ve skilled domestically for episodes over the previous 10-odd years.
JIMMY MOYAHA: This just about seems like an on a regular basis scenario in South Africa. If we take a look at international locations like the UK which are battling with what they now contemplate probably heading in direction of stagflation, their inflation is at 10%, their unemployment is at 3.8%, and they’re all freaking out.
If you take a look at South Africa, our inflation shouldn’t be that top up. We’re sitting at about 7.7%. We know our financial development averages at 1%, perhaps 2% if we’re having an excellent 12 months, however our unemployment is sitting at 40%. This ticks all the containers to type of say South Africa is just about residing in stagflation on a continuing foundation. How does this then have an effect on South Africa type of virtually, how does it have an effect on your on a regular basis South African relative to one thing like a recession?
RHANDZO MUKANSI: I believe the massive impression we’re seeing now’s totally on the inflation facet. The central financial institution has finished properly to comprise home inflation. In the previous couple of years it has actually been properly anchored at round 4.5%. And what we’ve seen globally is the consequence of the supply-side shocks, initially from Covid and then subsequent to that, of course, resulting from the Russia and Ukraine battle, the greatest cross-border battle just about since the Second World War.
So you’ve had these very two massive world macroeconomic shocks and domestically the way it’s manifested considerably is basically in our inflation, the place we’ve seen inflation de-anchor from that 4.5%-odd we’ve had in the previous couple of years to only brief of 8% with the July print now. So actually the impression on the man on the avenue is the inflation hits resulting from their pockets just about, the place inflation has gone, as I’ve stated, from, what, 4.5% to only brief of the 8% that we’ve seen now.
Maybe from a broader macroeconomic perspective as properly, the threat that we’d see in phrases of our funding panorama is to the fiscal channel. That’s actually chatting with authorities funds. This combine of low development, excessive inflation, has probably important dangers to authorities funds and, by consequence, in opposition to all of our residents of the nation.
JIMMY MOYAHA: Yes. Now you talked about authorities funds and that’s the fascinating factor. ‘Government finances’ ties into social grants. It ties into infrastructure expenditure by the authorities. It ties into the means to finance Eskom in bailouts and that kind of factor. The ripple effects that include authorities funds being adversely affected stretch far past what you and I type of see on an on a regular basis foundation, and they will truly come to a basic crippling of the nation in some respects in the event that they’re not adequately managed.
But now from a person perspective, simply earlier than I allow you to go, from a person perspective how do you then handle your portfolio to hedge in opposition to stagflation? We know that in the event you’re issues round inflation and these types of factor, your inflationary hedges are usually issues like gold. What we’ve seen just lately is the US greenback and that kind of factor. But how do you then hedge your private portfolio in opposition to the effects of stagflation?
RHANDZO MUKANSI: I believe firstly it’s essential be satisfied that we’re in a interval of stagflation, and maybe my counter to that may be that central banks have responded very strongly to the effects of heightened inflation. We’re seeing that each in the developed world in addition to domestically.
But if we’re to be involved about stagflation’s threat, a secure asset on this surroundings, I believe, can be money – the place you need to transfer away from threat belongings, be they equities or bonds, and you desire a heavier than normal holding in money to guard you from the erosion of your shopping for energy consequently of inflation.
So I believe we have now to be totally satisfied, simply given the extent to which central banks have responded to the threat. But if we’re satisfied of that, then the finest threat asset on this surroundings in our view can be money.
JIMMY MOYAHA: You heard the man. Rhandzo stated it: money is king. Thanks very a lot. Rhandzo Mukansi is portfolio supervisor at Futuregrowth.
