Patrick Mathidi, head of equity and balanced funds at Aluwani Capital Partners:
BUY: South African government bonds
On a risk-reward basis, there is still some value in South African government bonds. From a yield point of view of between 11% and 12% they’re risk free, assuming that the government won’t default on them. If nothing happens between now and when those bonds mature in 10 or 20 years’ time, you should be getting up to 12% on an annual basis. Though equities have a higher return profile — we calculate it to be 14% a year over the next three to five years — the risk for this asset class is too high. There are a lot more moving parts that can undermine returns. Certainly our equities are cheap, but they’re cheap for a reason.
SELL: Commodities
Commodities will struggle in this environment. We’re not banking on the growth news from China, as we estimate this to come from consumer spending rather than from capital formation. There is so much capacity in the Chinese economy. You’ll need the consumer to pick up the baton and start spending to grow that economy. We think commodities, together with commodity companies, will battle.
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