Peter Brooke 00:00

Good day, I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 18 of 2023. And I hope everyone had a good Worker's Day holiday on the first of May.

However, Monday certainly wasn't a good day for First Republic Bank, the third US bank to go bankrupt this year, and the second largest US bank ever on record. Although, looking at the S&P 500, you'd barely think anything happened. It was flat at nearly 4 200. Part of the reason for the relaxed market approach is that 90% of the damage was done in March, when Silicon Valley Bank went under. And we did a voice note back then about that. Now, back then, First Republic suffered a deposit run, but the big banks moved in to stop that contagion with 30 billion dollars of deposits. But with their recent results, one could see that that hadn't stemmed the outflows, and therefore it went into insolvency.

Peter Brooke 01:03

And now I'm very clear that this is not a replay of the global financial crisis. I'm less sanguine than the market is, I see this as another canary in the coal mine, flagging up the impact of higher rates. And as we finished another month, we've had another six hikes: 25 basis points in Colombia, Israel, Mexico, and Thailand. With 50 basis points in New Zealand, and our very own South Africa. I thought the New Zealand hike was interesting, in the face of the 13% - sorry, that's one three decline in property prices year on year. And I think markets are taking some comfort from the Q2 results, which have been rolling through, with 75% of US companies beating expectations, and broadly, Europe has also had pretty good numbers. But we must remember that these are backward looking, and the impact of interest rate hikes take time to come through.

Peter Brooke 02:04

I am more concerned by some of the recent data that we've seen. For instance, the Taiwanese export orders for March fell 26%. And specifically, semiconductors, an area that we are negative on, fell by 29% year on year. So, while Cape Town heads into winter, I think it is appropriate to brace for more stormy weather. And technically, the sullen May adage: this isn't a fantastic time in markets for the next couple of months. So, for us, that means running our portfolios with a little bit more interest bearing assets and less equity than usual.

Hope you enjoyed this perspective. Until next week.