Old Mutual: Where to value amid market volatility

Old Mutual, the renowned savings, insurance, and banking group, has recently released an Investment Note that sheds light on the vital factors investors should closely monitor in the current market scenario. These factors encompass the oil price, inflation rates, interest rates, equity markets, and the exchange rate between the rand and the dollar. Izak Odendaal, the Investment Strategist at Old Mutual Wealth, delved into the significance of these factors in a recent interview with CNBC Africa. Odendaal emphasized the recent positive shift in the risk environment, highlighting the oscillation of sentiment from pessimism to optimism. However, despite the recent gains in the market, he pointed out that the factors outlined in the Investment Note are poised to continue influencing market sentiment and investment returns in the foreseeable future. The unresolved nature of these factors, such as the elevated oil price impacting global consumer purchasing power and the critical relationship between inflation rates and interest rates, underscores the prevalent uncertainty in the market. The strategist delved into the implications of high oil prices, particularly in South Africa, where a substantial petrol price hike is anticipated. The ripple effect of a high oil price extends beyond borders, exerting pressure on consumer spending and consumption patterns worldwide. In addition, Odendaal stressed the pivotal role of inflation and interest rates, noting that equity markets are likely to face challenges in a climate of aggressive interest rate hikes by the Federal Reserve aimed at curbing inflation. Discussing market dynamics, Odendaal highlighted that the equity market has largely factored in higher interest rates, as evidenced by the divergence in performance between growth and value sectors. While the market has priced in higher interest rates, the potential ramifications of an economic slowdown have not been fully accounted for. Uncertainty looms regarding the possibility of an economic downturn, with conflicting views on the extent of the slowdown and its likelihood to progress into a recession. Amid the backdrop of declining markets in the US, concerns arise about the prospects of a recession. Odendaal outlined Old Mutual's stance, indicating a projected economic slowdown in the US while expressing hesitance about a full-blown recession. The strategist underlined the existence of safeguards such as accumulated savings on the household front, which may mitigate the impact of an economic downturn. However, he acknowledged the formidable stance of the Federal Reserve in addressing inflation, raising concerns about the potential need to induce a recession to achieve this objective. In light of the intricate interplay between economic indicators and market dynamics, Odendaal emphasized the prevailing uncertainty in the market outlook. The delicate balance between economic resilience and external pressures, particularly in the realm of monetary policy, complicates the forecasting of market trends. While acknowledging the recent market rally, Odendaal cautioned against placing unwavering trust in the current positive trend, foreseeing continued volatility in the coming months. As investors navigate the turbulent waters of market volatility, the insights provided by Old Mutual's Investment Note serve as a compass for strategic decision-making. With a nuanced understanding of the interconnectedness of macroeconomic factors and market behavior, investors can adopt a proactive approach to weathering the uncertainties and seizing opportunities amidst the ever-evolving financial landscape.