Cartesian Capital on real yield opportunities in SA’s volatile market outlook

South Africa's fixed income market is currently experiencing a surge in interest as real yields reach multi-year highs, presenting rare opportunities in the midst of a volatile environment. The equity market has traditionally been favored for its higher returns, albeit with increased volatility. However, the fixed income market is now offering a unique chance to generate real returns above 5 percent with relatively low risk. Anthea Gardner, Founder, Managing Director of Cartesian Capital, recently shared insights on this tactical asset allocation move during an interview with CNBC Africa. Gardner highlighted a significant shift in the yield curve in South Africa, with the spread between the repo rate and headline inflation at its widest in a decade. This presents a compelling opportunity for investors to capitalize on real yield above inflation. By reallocating assets for the short term, investors can potentially secure stable returns without being subjected to the volatility often associated with equity markets. As Gardner pointed out, the past 50 days have been particularly eventful, with the Johannesburg All Share Index experiencing heightened volatility while the 10-year government yield has shown relative stability. This trend underscores the attractiveness of short-dated fixed income portfolios for investors seeking real returns at minimal risk. Discussing the sustainability of the current environment for fixed income investors, Gardner emphasized the appeal of South African government bonds, noting the relatively low default risk and attractive interest rates. Despite acknowledging that the situation may not persist indefinitely, she encouraged investors to consider the potential benefits of pursuing real inflation-beating yields through strategic fixed income investments. Addressing the primary inflation risks that could impact current real yields, Gardner discussed Cartesian Capital's approach to managing duration and mitigating default risks. By closely monitoring interest rate projections and economic trends, the firm aims to position its portfolio effectively to navigate potential fluctuations in the market. Shifting focus to global currency dynamics, Gardner reflected on the trend of de-dollarization observed in response to geopolitical uncertainties and economic shifts. While acknowledging the diversification away from the U.S. dollar into currencies like the Swiss franc and Japanese yen, she underscored the enduring status of the dollar as a safe haven asset. Despite emerging alternatives such as the renminbi, Gardner expressed caution regarding a swift transition away from the U.S. dollar, citing ongoing skepticism and structural challenges in alternative currencies. In conclusion, Gardner emphasized the importance of strategic asset allocation and prudent risk management in the current market climate. By capitalizing on real yield opportunities in South Africa's fixed income market and carefully monitoring global developments, investors can navigate the volatility and uncertainty to achieve favorable returns.