Why The Dreaded Recession Has Been Averted Yet

A series of events that unfolded last year, among them the invasion of Ukraine by Russia, led observers to predict a mild recession this year. However, this is yet to happen and a number of factors have been identified as contributing dynamics in forestalling the recession. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="2,1,3,4" ihc_mb_template="1" ] Speaking this week in Gaborone in a webinar organised by Kgori Capital to discuss expectations of a recession and share ideas on portfolio positioning in the current environment, Portfolio Manager at PineBridge, Jonathan DiMola, said not all recessions are created the same way. Record high inflation He explained that the crux of the currently expected recession is inflation, which was in record highs for many countries last year. However, DiMola said, the market has been resilient, leading to avoidance of the global recession just yet. He pointed out four factors that have contributed to that, the first one being excess savings. “But they have started to deplete and we expect them to run out by Q3 2023,” DiMola warned. The second factor that he pointed out is the strong reopening of China following COVID-19, which has supported growth. “One of the key issues emerging markets have been performing relatively well is because of the reopening of China,” he asserted. Global liquidity DiMola identified the third contributing factor as global liquidity which has seen an uptick in the midst of a long downward trend while aversion of an energy crisis in Europe was also contributing. Nonetheless, he warned, pain is coming because global equity markets are expected to drop steeply in Q3 this year while interest rates will go up, causing borrowing costs for businesses to spike. However, DiMola said the reopening of the Chinese economy should lead to recovery in emerging markets. “China will pull up emerging markets more than the US and Europe will pull them down,” he said. Economic diversification Also speaking at the webinar on Wednesday this week, Investment Analyst at Kgori Capital, Kitso Mokhurutshe, noted that Botswana’s inflation has reached its peak and started trending downwards recently. While he said there is encouragement in terms of economic diversification in the country, he stated that in 2022, diamond exports contributed 87 percent of total exports with the US the major destination for minerals at 55 percent while China accounted for 11 percent. He warned that should there be a US-induced recession, there would be trouble for Botswana diamonds. “But China could prop up the exports because of its opening,” Mokhurutshe said. BoB’s hiking cycle Further, he added, the Bank of Botswana (BoB) has also reached its hiking cycle. He noted that Kgori Capital’s February figures indicated that Botswana’s credit growth stood at 10.10 percent while arrears were at 5.5 percent. “Arrears have been quite resilient with households at 5.2 percent and private businesses at 7.2 percent,” he said. “This is quite low by historical standards.” Giving an update on domestic financial markets, the Managing Director of Kgori Capital, Alphonse Ndzinge, said the equity market remains the most attractive asset class. “Equity markets have significantly outperformed (other asset classes) in the last 12 months,” he asserted. An earnings rebound He expects a strong earnings rebound in equity markets this year underpinned by the tourism, property and banking industries. “We haven’t seen the equity market this attractive in a long time,” Ndzinge said. Regarding bonds, he said the appetite could come from the government as it finds ways to fund the budget deficit. However, he added, there is scope for repricing in corporate issuance. Ndzinge described the money market as also attractive. “Cash as an asset class is the second preferred after equities,” he said. [/ihc-hide-content]

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Why The Dreaded Recession Has Been Averted Yet

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