What now?

Peter Linley executive head at OMAM, talks about low inflation in the international markets and the implications for investors, the sustainability of low inflation and the impact on the asset classes.

The low inflation scenario is interesting. The expectations has changed somewhat, in the last 12 months – these differ depending on whether you are in the unions, business the average consumer or analysts.

Unions expect inflation to rise at a higher level this year than predicted by business. Unions say it will drop in 2005, while analysts are calling an increase in inflation in 2005.

Performance for retirement funds saw Allan Gray at the top of the heap, followed by RMBAM, OMAM and Prudential.

Godwin Sepeng, a portfolio manager at OMAM, says that their investment base case is based on a rand/dollar at R7 to R7.5 levels, inflation should remain in the target range with an uptrend in Q2, with some moderate growth of 2.5%, while he says that interest rates will remain fixed, and domestic growth should remain firm at 4%.

The inflation rate has increased slightly and interest rates will increase.

On a global level, growth should be firm for 2004, and slow down in 2005, while China growth will slow moderately.

“Policymakers will err on the side of ease, global rates will uptrend moderately in the second half of this year, while the dollar will remain soft and commodity prices will hold firm,” he says.

While the local consumer markets and environment will remain favourable, he did make a case for some international exposure in investor portfolios.

“On the bonds, global rates should trend upwards,” says Sepeng.