‘Slightly better global growth next year’
In South Africa, bonds delivered a "reasonable" return of 8percent, while the average balanced unit trust fund equity portfolio barely beat inflation, with a 5percent return, he said.
He said slightly better global growth was expected in 2020, with the US Federal Reserve likely to maintain its easy monetary policy stance, and it could even reduce interest rates further during the year.
He said global earnings were relatively weak during 2019, but the average price/earnings ratios of global equities increased, which resulted in the good returns.
That meant "a lot has been priced in" for global equities looking into 2020, and much would depend on whether global equity returns could deliver on those prices in 2020.
The dominant theme for global investors was likely to remain the search for yield.
He said US equities were likely to underperform next year, after 10 years of outperformance.
The US economy had performed well in the past decade, with unemployment the lowest in decades in 2019, but recently there had been an uptick in jobless claims.
US fixed investment and confidence among corporate managers were slowing. In addition, US earnings were at high levels relative to their history, so delivery off those earnings bases would be harder next year.
A softening in US earnings should mean better prospects for markets outside that country, he said.
On the JSE, he said "things are getting better, but we remain cautious".
The equity market was impacted by the low-growth environment and an "explosion" of government debt, which might rise to over 70percent of gross domestic product next year, with reforms to "recapture" state institutions and grow the economy happening "painstakingly slowly".
However, the "pendulum was turning" gradually.
He said a factor that may boost the economy that not many people considered was structural change in South Africa’s energy sector, which planned to move from a dominant coal-burning, state-owned sector to one where about half the power came from renewables by 2030. This would entail substantially more participation by the private sector.
However, all this would likely be "too little too late" for a Moody’s credit rating downgrade, which might result in some bond holders selling off their bonds, offset to some extent by the fact that the bond market would still yield globally attractive returns, and the fact that bonds were already trading at junk-status levels.
This was confirmed recently by Citadel portfolio manager Nishlen Govender, who said that South Africa’s high bond yields, with their credit default swap spreads that accurately reflect the country’s credit rating downgrade, looked attractive even for foreign investors.