Bifurcation means to ‘drift apart’. We’re witnessing bifurcation on so many political and economic levels. It has had a massive impact on party-political outcomes and policies, as well as changing the economic landscape in 2024.
The post-pandemic surge in inflation has caused a global cost of living crisis for millions of low-income consumers, whilst the high interest rates that have been used to combat that inflation have benefited high-income consumers in the form of their investments. This growing rift of discontent between the haves and the have-nots has led to more vocal nationalism in several countries, pushing voters towards, often populist, opposition parties. As such, for better or for worse, we’ll see lots of policy changes in many countries that have just held elections. And then we still have the hugely important United States (US) election in the final quarter of the year. A Trump win, which looks more and more likely, is bound to have major ramifications for US trade policy, tax, fiscal health, and geo-political relations for the world’s largest economy.
Equity markets are also experiencing a bifurcation of their own as technology stocks reach for the sky while the rest of the market is essentially treading water amidst a cooling global economy. This sharp rise in tech versus the rest creates both risks and opportunities as they paint a very different picture of the future. This differentiation will only be resolved by a tech retracement or a catch-up by the rest of the market once global growth starts improving. While the tech sector is backing itself with solid earnings, it will keep the world guessing for longer.
As we enter the second half of the year, we believe the worst of inflation is behind us, and interest rate cuts lie ahead for most of the world, including South Africa. The answer to the long-awaited question of whether the US Federal Reserve can indeed engineer a ‘soft landing’ should become apparent during this next half of the year.
In South Africa, we face the realities of a new Government of National Unity which contains the green shoots of stability and growth. Unfortunately, it also contains the remnants of several poor policies and politicians that keep the country from reaching its true growth potential. Change does bring with it a sense of hope though, and asset markets immediately expunged some risk premiums, driving both equity and bond markets stronger. Let’s see if the politicians can turn this new dispensation into the beginning of a great turnaround story!
Our objective at Citadel is and will always be to preserve long-term, real wealth for our clients. Our diversified solutions have delivered on their targets during this turbulent political first half of the year and will maintain a cautious stance into the back end of the year as many risks still abound.
Enjoy this edition of Citation.
