Dancing near the exits
It is difficult to see how asset prices can do anything but continue increasing in the face of the mountain of liquidity generated by global stimulus policies.
This is the view of Rob Spanjaard, the US-based member of the team which manages Rezco Value Trend Fund, one of the South Africa’s top performing unit trusts. “Liquidity created by the stimulus is being recycled out of the USA into higher yielding assets, with emerging equity markets and currencies being major beneficiaries of this wave of money,” says Spanjaard. “This has and will have major negative consequences for the U.S. dollar and has caused unwelcome strengthening of the Rand,” he adds.
“Removing the stimulus from the system and dealing with the underlying economic problems, presents major challenges,” says Spanjaard. There are major imbalances throughout the developed world – for example in the USA the most significant imbalance is over-consumption, driven by borrowing on inflated asset prices, while China faces under-consumption.
“In the USA context, the imbalances will have to be dealt with at some stage – handing out money to all and sundry is ‘socialism’ and it does not work! However, it is likely that the powers that be are going to delay dealing with these issues for as long as possible.”
“In the interim,” says Spanjaard, “money will be made, but one has to ‘dance close to the door’ at this liquidity party. As the reality of the stimulus being removed comes closer, increased volatility can be expected.”
Rezco has a flexible asset allocation strategy, designed to manage the risks in currencies, markets and economies while also taking hold of opportunities. The core objective is to preserve capital in adverse markets and to create wealth for investors over the medium to long-term.
Since its establishment five years ago, Rezco has shown consistent positive performance well ahead of the overall market as measured by the JSE All Share index. The fund continued to deliver positive performance during the meltdown in the year to March ’09.
