News

May was a positive month for asset classes globally and locally, with local equities ending up despite local uncertainties and developed markets achieving an excellent 4.5% return in dollar terms on the back of more Tech rallies. US inflation slowed once more, breaking a two-month upward trend and local headline inflation maintained within the target band. The rand-dollar exchange rate was volatile but overall flat month-over-month. Bonds had a good month, with the ALBI and offshore bonds both up about 0.8% in their respective currencies. Initial reactions to the South African election outcomes were positive, with both bonds and equities rising, while the rand regained some strength on the Monday following the final results.

Modern Portfolio Theory introduced the key idea that investors must take on higher risk to achieve higher returns, but this may be misinterpreted as riskier individual stocks having higher expected returns. This article clarifies that Markowitz's theory applies to optimal portfolios, not individual stocks, and highlights the importance of investment managers in constructing such optimal portfolios.