You're listening to Strictly Business Podcast with Lindsay Williams. The war against Iran by the United States and Israel has caused problems for markets globally, but particularly for emerging markets. And South Africa has not been spared with me as Malcolm Charles, Portfolio Manager at 91 in Cape Town. Last time we spoke, Malcolm, everything was going so well. And as always in markets, we knew that something must happen, but we didn't realise the extent of this particular happening.
It really has been quite brutal, hasn't it? To be honest, Lindsay, it's been horrible. It has shaken the entire market, global market, as you said, and the ramifications, unfortunately, are dire for many, many economies. And I think the scarring for growth across, no one's going to be untouched by this. And that's the sad thing is, you know, so many countries were coming right.
but projection was positive, inflation was muted, growth was going to be okay, interest rates were going to be cut in many jurisdictions. And every single one of those assumptions is now off the table. Yes, I think the question now is, is this just a blip? Or is this a change in trend? And I suppose when you look at it from an essay specific point of view, a couple of years ago, it might have been the second one, a change in trend.
But now we've gone into this crisis, and it is a crisis, slightly better off than we might have been. No, absolutely. I think the silver lining is we went in pretty decent. We just had a fantastic budget where it was conservative. We had a ratings upgrade last year. The RAND had rallied dramatically throughout last year. Interest rates had been cut. Inflation was at 3%. So you can go on and on about how things were actually coming right.
We were started to see decent growth, employment was even shown tentative signs of improving. So we were in a very, very good space to go into it. As you said, if it had been a couple of years ago when we couldn't even keep the lights on, then we might as well actually have turned everything off and almost given up. So the country was in a much stronger position, and it's always good to be in a strong position when the crisis hits, because then you can actually...
Try and mitigate some of it, like we saw with the petrol price increase. You know, the minister announcing a three rand reduction in the levy. Now, we would not have been able to do that even a year ago. Yes, it's cold comfort, though, when you see the markets that I'm seeing on my screen now with the South African 10-year bond yield at 9.04%. Bear in mind, it's come down from exactly a year ago, Malcolm, exactly a year ago. Liberation Day was... Actually, you know, it's 364 days ago.
Liberation Day put the South African bond yield at something like 11.15% for the 10 years. Now 9.04%. But it has been to, I think, below 8%, hasn't it? Yeah, no, no. So it depends on where your reference, if your reference point was a year ago, then we still, we fantastic. If your reference point was a month and a bit ago, then you're a little bit sad because, you know, the All Bond Index. on last month, gave up almost 7%, but it had given you 29% from a year ago.
So it really is the reference point. But to me, the sad thing is it was unnecessary. It's not something that's made the world a better place. And I think a lot of financial pain has been taken across companies, across people, across funds. And that's the new reality. It's a crazy reality right now. And it's a very volatile reality. Yes, it is. It was so unnecessary. And we could go on for a long time. But it's not our job to do that about what has happened in the last four weeks.
But the reality is what we're going to do from now on. And what are you going to do over the last month? Have you been active in your portfolio construction? Absolutely. We've had to be very, very active because It wasn't something that was like, you know, a change of economic cycle. This was a shock to the system. So, you know, you couldn't really preempt it. So we've had to very quickly reduce risk.
We've had to increase our optionality and our protection in portfolios and just try and preserve capital as much as we can. We're in a very different inflation and interest rate environment than we were a month ago. We would, you know, as a... as I mentioned earlier, we've gone from expecting two rate cuts in 2026 to, you know, if we get two to three hikes this year. I don't think anyone will be completely surprised. So, you know, we've had a changed portfolio risk.
We've had a look to try and increase yield with very little risk associated with that yield. Whereas a couple of months ago, you were happy to take a lot more risk in the portfolio. So absolutely a very active time. But, you know, things change and you have to change with it and you have to adapt your view, adapt your portfolio. most importantly, bring down the risk in the portfolio. Yesterday, which was the last day of the first quarter of 2026, markets rallied strongly. Wallet price came down.
Asset classes like equities went through the roof. I think the Nasdaq was up nearly 4%, for example. Bond markets rallied. In other words, yields coming down. And a lot of people might say that that was window dressing at the end of the first quarter. Other people will say, well, it's just another Trumpism, another careless comment from the President of the United States, and the markets reacted to that, and they should know better. But what do you think?
Do you think that the worst is over, Malcolm? Yeah, it's an interesting question, because I think a little bit of both happened. I think, you know, there is a behavioral end of the first quarter sort of in some markets. And I think Trump is desperate for an off ramp. The problem is, it's a bit harder than you tariffs. Tariffs were one-sided. He decided to put them on so he could decide to delay them or take them off. When you're at war with someone, the other party needs to agree.
And unfortunately, the longer it's gone on, if this was two weeks ago, I would have said, absolutely, it's an off ramp and he can claim his victory. And I think we would have been okay. The fact that it's gone on for a month and he's got ground troops in the area. I think you've got to be a little bit naive if you think that we can wrap up and say all the risk is off the table right now. I think caution remains and it's a little bit early to bet the farm on any markets right now.
Okay, so you're saying to yourself the round has gone from 15.50 to 17 plus. The bond rates have done what we discussed earlier on. The South African Reserve Bank and the authorities in South Africa have been swift to move in a way that they couldn't have moved a couple of years ago. But are you waiting with your tender drive for something concrete to materialize in the next couple of weeks, hopefully? Yeah, I think that's the prudent outlook.
You're tempted to go the human nature way and say, I'm going to back it against this. But we custodians of capital, we've got to do what's right. I don't mind missing the first little bit of a recovery as opposed to getting in too early and wiping out capital. So I think it's prudent to be a little bit more cautious. I think you can be a little bit more active in these markets when you have big swings.
But to bet the farm on Trump miraculously finishing a war after a month, I think is probably a little bit irresponsible. Malcolm, thanks so much for your time and very good luck. And I look forward to our next chat, which might be sooner than you think. Malcolm Charles is a portfolio manager at 91 in Cape Town.
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