In this interview with BizNews editor Alec Hogg, Corion Capital Chief Investment Officer David Bacher discusses the market dynamics of November. Bacher shares his cautious outlook on the US market, citing stretched valuations despite strong performance driven by a rising US dollar and President Trump’s economic policies. He advises moving away from US assets in favour of more attractively priced opportunities elsewhere. Turning to South Africa, Bacher highlights positive economic developments, including a sharp drop in inflation to 2.8%, which may lead to interest rate cuts and bolster the bond market. South African equities saw solid performance, particularly in retail and agriculture, although the resources sector struggled due to weaker commodity prices. Bacher also notes that South Africa’s political challenges remain, but reform prospects offer hope. Globally, he sees opportunities in Europe and parts of Asia, particularly India and Southeast Asia, due to strong growth potential and rising consumption.
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Highlights from the interview
In this interview, Alec Hogg and David Bacher, Chief Investment Officer at Corion Capital, discuss November’s notable market trends and investment outlooks. They begin by analysing the strong performance of US markets, driven by a surging US dollar, President Trump’s economic policies, and investor optimism. Despite this, Bacher remains cautious about the high valuations of US assets and suggests that the market could be nearing its peak. He argues that the US market is overvalued relative to other regions, particularly when considering the premium paid for earnings.
Turning to South Africa, Bacher highlights the country’s positive economic indicators, particularly the significant drop in inflation to 2.8% in October, the lowest since 2020. This drop provides optimism for potential interest rate cuts, which would benefit local markets, especially bonds. South African equities also performed relatively well, with strong gains in the retail and agricultural sectors, although the resources sector lagged due to global commodity price pressures and a strong US dollar.
Bacher acknowledges South Africa’s risks, including political instability and the challenges in state-owned enterprises, but he also sees positive signs, particularly in sectors like resources and agriculture. Looking globally, he remains cautious about broader emerging markets but sees potential in Europe and Asia, particularly India and Southeast Asia, due to their growth prospects and rising consumption. Despite global uncertainties, Bacher stresses the importance of diversification and managing risk in investment strategies.
Edited transcript of the interview
Alec Hogg (00:08.32):
David Bacher from Corion Capital decodes the previous month for us every month. And I cannot remember when last we had such an exciting potential conversation as the one we’re going to have today, where we look back on November. The Trump trade, the surge in US markets, Pax Americana is back, or so they think. We find out from David exactly what happened to investments in America and outside.
Alec Hogg (00:40.782):
So there we go, David. We’ve had fireworks. There was no Guy Fawkes Day in America, but they certainly did have fireworks on the 5th of November. And here we are with a new president coming in and just about every asset class related to the United States is strengthening. You’ve been around long enough to know that everything moves in cycles. Is this a cycle now at its zenith, or is it still building?
David Bacher (00:41.63):
So there we go then. We’ve had fireworks. It was a tough last day.
David Bacher (01:12.387):
We think it’s close to its zenith. These things can go on for much longer than you’d expect. It certainly is the case in terms of our expectations. But at Corion, we always look at valuations, and valuations on the US market are very, very stretched. You can get cheaper earnings for what you’re paying for shares elsewhere. We are, if anything, moving more away from the United States than into what has certainly been an exceptionally strong US performance.
Alec Hogg (01:46.478):
You made a good point there, David; maybe we can extrapolate it briefly. When you’re investing in shares, you’re buying the earnings or the profits, that that company is generating for you. And $1 of profits in the United States is the same as $1 in profits in China or $1 of profits in South Africa. So, if you have to pay a premium, depending on where you’re getting that dollar of profits from, it’s got to be pretty well—first of all, it can’t be too big a premium, and secondly, it’s got to be pretty well-based. And I guess at the moment, in the United States, there’s a strong argument to say that you’re paying far too much for a dollar of profits there compared to elsewhere.
David Bacher (02:31.198):
Correct. I think people on the other side of that argument will argue that the growth—or the expected growth—in earnings, one year, three years, five years, in the United States will be higher. Therefore, they can justify paying a premium for the earnings that they’re buying. When you’re looking down the line and at forecasted earnings, you’re taking a lot of assumptions into account and a lot of forecast risk. So, what we do at Corion is try to have a more normalised earnings outlook.
Based on our normalised earnings outlook, we still think that the premium you’re paying for the US market relative to other markets is substantial and warrants an underweight position in the United States. I have certainly been beating that drum for the last few months and have been proven wrong so far. But these things can snap back quickly. For our investors, we’re not following the steam train and moving in a different direction.
Alec Hogg (03:33.56):
So, let’s understand that David is not talking in isolation. The Financial Times of London today gave us some figures showing that the United States is 27% of global GDP, but at the moment, 70% of investable assets are there. So, if you think of that, it’s nearly three times the valuation of the country’s economic generation to the assets you are paying for. As always, David and his team at Corion put together a wonderful presentation. If Donald Trump could see the picture you gave us, it’s on-screen now. I know people listening to the podcast can’t see this, but you’ve got a thin Donald Trump dressed up like James Bond. David’s team is calling him President 0047.
Alec Hogg (04:32.906):
And his name is Bond. Jammer Bonds. What the heck are you talking about here?
David Bacher (04:39.514):
We missed the mark. It was a play on Afrikaans—Jammer Bonds. So the name is Bond, Jammer Bonds. President 0047’s rhetoric around tariffs is what we’re having a play at here. Tariffs are like special taxes the government puts on goods from other countries. And when these goods arrive at a country’s border, businesses have to…
Alec Hogg (04:44.728):
How jammer?
David Bacher (05:07.582):
…pay an extra charge. And unfortunately, this cost doesn’t just disappear—it gets passed on to consumers like you and me. So the Jammer Bonds—sorry, Bonds—is a play at potential inflationary concerns down the line. As you know, sticking with the James Bond theme, the villain of inflation is the bond market. Hence the title: The name is Bond, Jammer Bonds. President 0047 was our lead for this month’s report.
Alec Hogg (05:40.834):
Don’t judge everybody based on my limited understanding of the explanation there. I get this part, this headline: shaken, not stirred. All about, well, it was a Bitcoin November.
David Bacher (05:49.328):
It was a Bitcoin November, and that goes—Bitcoin was up 35%. It’s just truly remarkable. But I think the other big driver of the markets, probably the most important, was the strong US dollar. And America is shaking the world’s economy. The dollar’s strength after Trump’s election can largely be explained by expectations of favourable economic policies and potentially high interest rates. A strong US dollar is certainly good for some parts of the investing world, especially if you’re a US investor, but it does create problems for other countries. So, virtually across the board, there were some headwinds if you convert equity returns into US dollars.
Alec Hogg (06:41.292):
He’s so combative, isn’t he? He now has threatened South Africa and every other member of BRICS with a hundred percent tariffs. A hundred percent tariffs, if we don’t drop—or BRICS doesn’t drop—the idea of an alternative currency to the US dollar. It’s actual bully tactics, or maybe it’s just a negotiating position. One never knows with Trump.
David Bacher (07:02.28):
Yeah, I think you’ve got it. I read somewhere that you’ve got to take Trump very seriously, but not literally. So you never quite know if it’s a negotiating tactic, but yes, it’s certainly not great for South Africa if he continues implementing those thoughts.
Alec Hogg (07:21.784):
But it was an extraordinarily good month for US stocks.
David Bacher (07:26.534):
It’s exceptional. I read somewhere that the market in America is up 58% since the end of 2022. It is probably the biggest return since 1998—the dot-com bubble-to-your-return. The US market has been exceptionally strong. As you said earlier, the US is the majority of global equities in its benchmark weighting. You would be smiling if you were an offshore investor and invested in an industry more directly tied to the United States.
Alec Hogg (08:05.07):
2022, not 2002, I’m sure you meant, David. In other words, in two years. I keep making those mistakes all the time. 58% since 2022—awesome. And Elon Musk—government efficiency. I heard today on the FT News briefing that lawyers in America, in Washington, are sending out their CVs as never before. People in the Justice Department, various other departments, and private sector firms are saying, “Please, we need a job. We think that Elon’s going to fire us.”
David Bacher (08:09.576):
Thank you, Alec. Correct.
Alec Hogg (08:34.498):
I think it’s 20 people or 19 people who are now on the economic board that Cyril Ramaphosa has just appointed—none of them are businesspeople, not a single businessperson, all academics and bureaucrats. They’re not good at firing. So, unfortunately, the only way you can win in this thing—if you’re in a DoGE—Department of Government Efficiency—is by getting rid of people. Anyway, it is what it is. We will continue to dream here in South Africa. As far as South African investments have performed in the past month…
David Bacher (10:14.686):
I think the standout macro event was the low inflation. Inflation dropped to 2.8% in October. This is the lowest since 2020—if I’ve got my numbers right now. That’s very good for our bond market, very good for potentially lower interest rates coming down further. That fueled our bond market. Our bonds were up 3% for the month, a big boost to South African assets. SA equities were up just under 2%. We also had some good gains on the resources side and in terms of agricultural land. South Africa, compared to the US, was a good performer. That said, I still think that, globally, the US has been the big winner.
Alec Hogg (10:35.128):
Yeah, absolutely. And then, if we look at the local scene, I think it was an interesting month for commodities. The Rand has had a bit of a bounce as well. Gold has had a pretty strong run. But, David, let’s discuss this inflation number you mentioned. It is remarkable because we’ve come through a phase where inflation was in double digits, and now we’re seeing a 2.8% print. That’s a huge drop and a positive one for South African consumers. What does it mean for interest rates going forward?
David Bacher (10:55.232):
It’s a very positive development. If inflation continues to stay in this range, I think we’ll see lower interest rates in the next 12 to 18 months. The South African Reserve Bank has been very focused on inflation. If they see a sustained drop, they might consider a rate cut, which would be good news for the general economy and borrowers and businesses.
Alec Hogg (11:16.624):
I agree. And on the Rand front, we’ve seen the currency bounce back a little. I’m curious to hear your thoughts on this. With the strong dollar, how do you see the Rand moving over the next little while? It seems to have been under much pressure but shows some resilience.
David Bacher (11:30.76):
The Rand has certainly been under pressure, especially in the wake of the strong US dollar. But it has managed to hold its ground better than expected, largely due to the positive news on inflation and lower bond yields. The South African Reserve Bank’s credibility has improved, and there are still enough investors looking for value in emerging markets, especially in the resources space, where we’re seeing strong performance. We expect the Rand to remain volatile, but seeing it stabilising at current levels is encouraging.
Alec Hogg (11:58.72):
Yeah, and I guess that ties back to what you said earlier about the difference in valuations between the US and other emerging markets. You’ve repeatedly mentioned that South Africa is offering good value right now. Are you seeing that as something that could potentially sustain itself for a while, or do you think we’re going to hit some headwinds here again?
David Bacher (12:17.192):
It’s a tough question. If you look at our equity market, the valuations, on the whole, are relatively attractive. But, of course, there are risks—global growth could slow down again, putting pressure on emerging markets like South Africa. The global economic outlook is still uncertain. If inflation rises in developed markets again, or if interest rates continue to rise globally, that could trigger some volatility here. But I do think South Africa offers good value, especially on a longer-term horizon, particularly in sectors like resources and agriculture.
Alec Hogg (12:48.376):
Absolutely. I was just about to ask about those sectors, and you preempted me there. Resources and agriculture are the sectors in which South Africa has strong competitive advantages, right?
David Bacher (12:59.372):
Yes, absolutely. The resources sector has been a real standout. We’ve got world-class companies in mining, and we’re a major player in commodities like platinum, gold, and coal. And with the global energy transition, South Africa benefits from increased demand for things like green metals, which are needed for battery production and renewable energy. The agricultural sector is another strength. Despite all the challenges, our agricultural exports remain strong, and with global food demand rising, this is an area where South Africa can continue to compete well.
Alec Hogg (13:29.658):
There’s a lot of value to be unlocked there. And one final thing on the South African side, David—looking at the political landscape, I know you’re cautious regarding South African politics. We’ve seen a lot of chatter in the last month about the government’s fiscal policies, state-owned enterprises, and the potential for reform. Do you think there’s real hope for a turnaround in governance?
David Bacher (13:51.482):
It’s tough to say. You’ve got to be realistic about the challenges South Africa faces. There’s a lot of talk about reform, but implementing meaningful change is always the sticking point. However, there are positive signs. We’ve seen the government take steps to address things like state-owned enterprise reform and the energy crisis, though progress has been slow. If they can get more serious about fixing Eskom and cutting down on corruption, that would be a huge positive for the country. But, ultimately, politics can be unpredictable, so we remain cautious in the short term, even though the longer-term outlook could be better if reforms take hold.
Alec Hogg (14:20.09):
Yes, indeed. And, David, before I let you go, let’s wrap up with one final thought. We’ve talked a lot about the US and South Africa, but when you look globally, where are you seeing the most opportunity outside of the US? Which markets or regions are you most excited about?
David Bacher (14:35.372):
If we’re talking about developed markets, we still think Europe is a place to watch. It’s had a tough time, but valuations are more attractive there than in the US. Additionally, Europe is expected to benefit from the global push towards renewable energy, and that’s a major theme. Looking at emerging markets, we see opportunities in Asia, especially in places like India and Southeast Asia, which have strong growth potential and benefit from rising middle-class consumption. But for now, we’re still cautious on the broader emerging market space, given the uncertainty around global economic conditions and interest rate movements.
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