With the economic headwinds of sticky inflation and persistently high interest rates, an underwhelming Chinese rebound and a weakening US dollar – how do the next few months look for investors? Our Chief Investment Strategist Chris Holdsworth, gives his analysis in the latest episode of the No Ordinary Wednesday podcast.

With sticky inflation, high interest rates, and lacklustre Chinese recovery, creating economic turbulence worldwide, the third quarter of the year is proving uncertain for investors.

Central banks, including The Federal Reserve and the European Central Bank, remain hawkish, refusing to rule out more interest rate hikes, even in the face of slowing growth.

 Europe is already facing recession, and it is likely the US will soon follow. With interest rates at their highest levels in the last 15 years, monetary policies appear highly restrictive, even as signs indicate slowing growth and decreasing inflation. This mix of factors making investment decisions trickier were ventilated on the fortnightly No Ordinary Wednesday podcast with guest Chris Holdsworth, Chief Investment Strategist at Investec Wealth & Investment.

Investors eye AI

While the broader outlook may be gloomy, equities seems to be bucking this trend, showing surprisingly good returns for investors. Driving this anomaly is the rise of AI themes in the US and increasing optimism among market participants. But Holdsworth and his team are cautious. They believe the market should be weaker, and they're currently underweight offshore equities, feeling these aren't pricing in risks accurately.

-0.5 global risk budget score

So, where does that leave investors ahead of the South African spring? The Global Investment Strategy Group at Investec offers valuable guidance. It assigns a risk score between -3 (risk off) and +3 (risk on) based on numerous factors, including global economic conditions and central bank activities. Currently, their score sits at -0.5, indicating a cautious approach to investment but not a full retreat.

China, a significant player in the global economy, isn't offering immediate hope. Its slow recovery is concerning, though the silver lining could be their low inflation rate. This low rate provides room for monetary policy intervention to stimulate the economy, which is expected given the alarming 20% youth unemployment rate.

Regarding currencies, the US dollar's future seems to be in limbo. Historically strong, its medium to long-term outlook appears weak, especially with an impending US recession. Yet, for the next few months, Holdsworth expects the dollar to remain steady, primarily due to its reputation as a safe-haven currency.

Opportunities in SA Inc

Emerging markets usually suffer when global growth slows, but they might be spared this time. The proactive stance of emerging countries, hiking interest rates before the FED, means they're already starting to cut rates, potentially spurring domestic demand.

But what about South Africa, specifically? Holdsworth sees value in SA Inc, despite the global slowdown and local challenges. A predicted decrease in inflation, expected cuts in interest rates, and an alleviation in load shedding (thanks to increasing imports of solar panels) present two significant tailwinds for SA Inc in the coming year. With these positive shifts and a forward P:E of about nine, SA Inc looks to be a promising sector for investors.

Holdsworth says he finds SA bonds attractive despite potential fiscal issues and recommends an overweight allocation in gold given the current uncertainties. He advises caution with properties due to the rising trend of remote work and the shift to online shopping and remains underweight in offshore equities, favouring offshore fixed income instead.

In this volatile economic climate, he says informed choices are crucial. SA Inc, with its potential tailwinds, seems to be an attractive option amidst global uncertainty. As always, investors should keep a close eye on global market dynamics and adjust their strategies accordingly.

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