While uncertainty driven by the COVID-19 pandemic continues to pervade every aspect of our daily life and impact the outlook for the world’s collective future, when looking at the markets, the pandemic – and its implications – is last year’s news.

This was the message at Old Mutual Investment Group’s quarterly media briefing this week, which set out that investors should be moving beyond the short-term pressures created by the emergence of the virus and instead look to the longer-term opportunities that could materialise in a post-pandemic world.

Speaking at the media briefing, Director of Investments at Old Mutual Investment Group, Hywel George, cited several trends that are likely to emerge post the pandemic, as well as several existing trends that are likely to accelerate, such as social and income inequality and decarbonisation. However, looking at market opportunities specifically, George unpacked key opportunities that could arise in this new world.

“Accelerated digital disruption means investors should be looking to companies with great management that are positioned to navigate this disruption,” he says. “We are also seeing stronger corporate balance sheets as capex was slashed and cash management improved, which should allow for increased investment opportunities.

“We already know that retail and office spaces will continue to be adversely impacted by remote working trends, but warehouses could offer increased opportunity as companies such as Takealot continue to thrive.”

Also speaking at the media briefing, Old Mutual Investment Group Chief Economist, Johann Els, pointed out that a stronger than expected Q2 economic performance resulted in him upwardly revising his 2021 GDP growth forecast to 5.6%.  Els added that even if there was zero growth in the second half of the year, average 2021 growth would still get to 5.4%.

Els said there were several positive indicators underlying the expectation of better medium-term economic growth.  “We are moving into a scenario where the strong headwinds of the recent past are busy dying down and tailwinds are busy picking up. In other words, the stagnation of the past is not expected to continue.”

Els said several factors have improved recently, ranging from politics and policy to the anticipation of massive energy investment, a positive vaccination trajectory and the positive impact of lower interest rates, higher commodity prices and record agricultural crops, adding that the July unrest in parts of Gauteng and KwaZulu Natal is likely to be an inflection point for faster policy reform. 

Els’s 2021 inflation forecast points to an annual average 4.2%. Inflation is well under control with no demand push pressures evident and expectations well-anchored around the mid-point of the target range. This will likely delay the start of an interest rate hike cycle to early next year and will also mean that such a cycle will likely be slow and moderate.

The rand was also expected to remain stable in the medium-term on the back of better-than-expected economic growth, improved political stability, improved macro policy, strong institutions, improved fiscal position, and low and stable inflation.

According to Els, international factors are still contributing to SA’s buoyant outlook, including the markets’ seeming willingness to accept the US Federal Reserve’s policy stance and inflation outlook.  Policy easing in China amidst a slowing economy there and strong European activity also bode well for the domestic economy’s outlook.

Against this backdrop, George and his investment team continue to see opportunity in the fact that SA Inc shares are cheap, and that they are likely to benefit from a better domestic economy. “SA small-cap shares should do particularly well if you pick the right management,” George added.

“We also see great upside potential in Environmental, Social and Governance (ESG) investment, with ESG only set to grow in importance. Furthermore, SA has a distinct global advantage in renewable energy – with significant amounts of wind, sun, and coastline”.

“Lastly, we envision massive opportunity for SA to plug digitally into a flattened world of opportunity,” George concluded.