July 2021 will be remembered for the social and political unrest in South Africa. Financial markets, apart from the Rand, performed well despite the negative sentiment. Our currency weakened (-2,04%) against the US dollar and other major currencies.

Before we go any further it is worth bearing in mind that social unrest is not a South Africa only problem. Unrest events, as measured by the Institute for Economics and Peace, have increased materially across the globe over the past decade.

The driving forces behind these unrest events locally and abroad are beyond the scope of this newsletter. I do, however, want to use this scenario and illustrate how we relate these events to the portfolios that we manage from a Macro point of view. Our macro model is solely focused on the change of inflation growth and the change in economic growth as we regard that as the main economic drivers of asset prices.

Now, coming back to the riots. We can all agree that it had a direct and negative financial impact on the growth rate of our economy (GDP), which is not good for businesses and therefore not good for certain Equity sectors. The scale of disruptions could also cause the supply chain of goods and services to be under pressure and therefore potentially push prices higher which could mean higher inflation (CPI) down the road.

The relation of the event described above and its potential effect on CPI and GDP is provided for within our portfolios. Our portfolios always include assets that will benefit in high inflation, low inflation, high growth, and low growth environments despite the reasons or events causing any of these environments. It is therefore possible to benefit within a portfolio from such negative events, not because we had knowledge thereof beforehand, but because our portfolios are constructed with assets that are mapped to 4 basic economic environments as illustrated above. This strategy ensures that our portfolios are always well balanced and diversified.