Long Beach Managed Prescient Comment - Sep 19 - Fund Manager Comment24 Oct 2019
The Long Beach Managed Prescient Fund returned 0.78% for September and the fund's benchmark returned 0.90%.
Draghi, in his last meeting as ECB President, lowered EU interest rates to -0.50%, restarted QE at EUR 20bn per month and spoke at length about the need for new fiscal policy to provide additional stimulus for the EU economy. Recent weaker economic data in the US is also likely to keep the Fed firmly on the path of cutting interest rates, and recent funding stress in the repo market, which precipitated the need for additional overnight funding from the Fed, may also cause the Fed to restart QE, with the result that global monetary conditions are again becoming 'highly accommodative'.
The SARB left interest rates unchanged in September, with inflation towards the middle of the target range and growth anaemic, there is no doubt the SARB can afford to take bolder action, which will be more consistent with global shifts in monetary policy. October's medium-term budget policy statement is a critical deadline for Ramaphosa's government to set out a credible restructuring plan for technically insolvent SOEs including Eskom, and greater fiscal policy certainty will enable the SARB to be more aggressive with monetary policy.
Before the financial crisis of 2008 and the monetary repression which followed, a slowdown in economic conditions, usually brought on by central banks raising rates to contain inflation and prevent growth from overheating, would presage a weaker equity market as corporate revenues and earnings came under pressure. Post 2008 in a global monetary regime of quantitative easing and ultra-low interest rates, weak economic conditions have consistently been met with aggressive new stimulus measures, which have ultimately proven to be supportive for asset prices.
The Long Beach Managed Prescient Fund's offshore holdings continue to be fully invested in global equities with attractive earnings growth prospects. The fund's local holdings are invested in both global companies, which are listed in SA, and are attractively valued with good earnings growth prospects, and local SA companies which are attractively valued, and well managed with sound balance sheets with good cash flows. The fund maintains a strong preference for large cap companies which have an attractive business franchise and globally diversified revenues and earnings.