Autus CEO, Dominic Ilett, share insights into what has dominated the economic narrative this past quarter.

According to Google, at the time of writing, there were 743m searches for the word ‘inflation’, 316m for ‘recession’, and 160m for ‘soft-landing’. These numbers indicate how top-of-mind these indicators are and how they have dominated the economic narrative this past quarter.

The South African economy performed better than expected so far this year with real GDP growing by a seasonally adjusted 1,9% quarter-on-quarter in Q1 2022, up from 1,4% in Q4 2022. This increase was driven by continued growth in consumer spending and by government expenditure, complemented by an encouraging acceleration in fixed investment. Should domestic demand remain buoyant and consumer spending and fixed investment resilient, it is possible that the economy could expand by more than 2% in 2022. Headwinds to this outlook such as regular load shedding, weaker global demand, rising domestic energy and food costs lifting inflation, and higher interest rates are a concern. Inflation breached the upper end of the Reserve Bank’s target range in May due to higher food and fuel prices and as a result, the MPC is likely to tighten interest rates further. This will hurt discretionary income and persuade households to be more cautious about spending on non-essential goods and services. SA CPI inflation is expected to average 6.5% for 2022, while a prime lending rate of 9.25% is forecast at the end of the year.

Economic conditions globally deteriorated in the first half of 2022. The Russian invasion of Ukraine pushed international energy, food, and other commodity prices sharply higher, adding to global inflationary pressures. China locked down some of its cities to combat an outbreak of COVID-19. The two-month restrictions negatively impacted the production and supply of goods to its trading partners exacerbating the already constrained global supply chain. In advanced countries, inflation increased to around 40-year highs, forcing the Federal Reserve in the US and other major central banks to tighten monetary policy much more aggressively than previously expected. Given the multiple headwinds facing the world economy, the World Bank revised its global growth forecast for 2022 down from 4,1% to 2.9%. Global risk appetites are likely to remain subdued and markets volatile because of slowing growth and higher inflation, unsettled by growing fears of stagflation and the increased threat of recession. Investors should brace themselves for more volatile markets in the second half of the year.


Matt Maher said “In order to move forward you need to look back.” At Autus Fund Managers, you can be sure that we understand the importance of doing both.

How do banks benefit from rising interest rates?

By Francois Roux, CFA

Low interest rates and negligible inflation rates have been a normal feature of market conditions for the better part of the past decade and a half. This changed in the wake of the Coronavirus crisis after governments and central banks around the world introduced extraordinary stimulus measures to revive struggling economies. The effects of these fiscal and monetary stimulus measures, along with severe supply chain disruptions, have reignited inflation rates in developed economies to levels not seen in the past four decades. In response, central banks have been forced to withdraw monetary stimulus and begin to raise interest rates in an attempt to bring inflation under control.

Higher interest rates are generally negative for risk assets such as stocks, but not all sectors of the stock market are affected in the same way or to the same extent. High-growth, unprofitable technology companies, for instance, are much more susceptible to having their valuations knocked down a few notches when interest rates rise suddenly. Their expected future cash flows are further into the future and when discount rates rise, their valuations fall much faster than more defensive sectors in the market. Highly leveraged companies are also at higher risk of default when interest rates rise because the costs to service their debts rise in tandem with policy rates.

One sector that traditionally benefits from a higher interest rate environment is the banking sector. Banks borrow money from depositors in the short term and lend out money to creditors in the long term. The spread between short and longer-term interest rates is where the banks make their profit. Higher interest rates generally lead to greater spreads, which raises bank profitability. Another way in which higher interest rates help banks is the increase in marginal savings rates by individuals and companies when interest rates are high. Consumers tend to spend their cash much more willingly when the rates of return on their bank savings accounts are low, but the impulse to save money tends to become much stronger when these yields become more attractive. A final major factor in the relationship between higher interest rates and higher saving rates is that the market turmoil that often results from a central bank hiking cycle could lead investors to be more cautious with their risk appetites, thereby increasing the demand for low-risk savings products offered by banks.

The following two figures consider the relationship between central bank policy rates and the performance of the banking sector in the United States and South Africa:

For the reasons discussed above, bank stocks tend to perform well in times of rising interest rates, and vice versa for falling interest rates. This could provide investors a source of protection during rising interest rates when other parts of their portfolios may suffer losses. It must be noted, however, that the banking sector is not immune to the general level of volatility usually experienced by markets during times of rising interest rates and the selloffs that accompany them. It would be more accurate to consider this sector as a source of diversification in the investor’s portfolio.

A Global Response to Conflict: Increased Military Spending

By Francois Roux, CFA

On the 24th of February 2022, a geopolitical seismic shift occurred when President Vladimir Putin of Russia ordered his troops to invade Ukraine. Conventional war between nation-states had returned to the European continent for the first time since the devastation of the world wars of the 20th century. Tension in the region had been brewing since Russia’s annexation of the Ukrainian territory of Crimea in 2014, accompanied by an uprising by Russian-backed separatists in the eastern part of Ukraine. The timing and scale of the invasion caught some policy experts by surprise given the stakes involved for Russia and its relationships with the rest of the world.

One of the long-term consequences of the invasion is the projected increases in the military and defence budgets of countries both near to and far from the conflict. The North Atlantic Treaty Organisation (NATO), which consists of 30 members from North America and Europe, is waking up to the threat of a hostile Russia on the borders of some of its members. Public opinion within these countries has drastically shifted towards a willingness to allocate more of its resources towards resisting Russian aggression in Ukraine and strengthening its defences at home.

NATO’s long-term goal is for each member to spend at least 2% of its gross domestic product on its military defence budget. Some members, most notably Germany, have been spending below this target for years, but the Russian invasion of Ukraine caused a dramatic turnaround in Germany’s approach to Russia. According to Stockholm International Peace Research Institute, 69% of the German electorate are now supportive of the government’s plan to increase spending on its military, compared to just 39% in 2018. Similarly, in 2014, only 21% of Germans wanted to send more German troops to NATO countries in Eastern Europe, according to a poll by ARD. By March 2022, this figure had climbed to 68%.

In addition to boosting expenditure on its own military, Germany has also reversed a decades-long policy of restraint in providing military aid to foreign countries. However, the magnitude of its support pales in comparison to other Western allies. The support is led by a gigantic 3-billion-euro aid package from the United States which is expected to increase significantly in the coming months. The following graph indicates the arms and weapons commitments by various countries excluding humanitarian aid and funding for Ukraine’s government.

Long before the invasion of Ukraine, military expenditure had been increasing steadily as trade tensions and territorial disputes among major powers gained prominence in the news cycle. The following graph reveals the growth in global military spending over the past three decades measured in constant 2020 dollars.

In terms of overall military spending, the United States and China stand out as the leaders, as shown in the graph below. The United States spent 801 billion dollars on their defence budget in 2021, which added up to around 38% of the world’s total. China is the world’s second-largest defence spender with approximately 209 billion dollars, an increase of 6.8% compared to 2020. China announced a projected increase of 7.1% in their defence budget for 2022.

The five largest arms manufacturers in the world are American companies, as indicated by the chart below which shows revenue from arms sales for each company in the sector. Lockheed Martin is the world’s largest arms dealer. It also manufactures the world’s most expensive weapon, the F-35 Lightning II fighter jet which sells for around 80 million dollars for the most basic model. Nearly 800 units have been sold to the United States and its allies since the jet’s introduction.

Defence company stocks soared on the news of the Russian invasion of Ukraine. As shown in the graph below, the greatest beneficiaries are German arms manufacturers Rheinmetall and Hensoldt, both of which count the German government as a major customer. BAE Systems of Britain, Thales of France, and Leonardo of Italy also saw their stock prices benefit in anticipation of increased spending by the European militaries.

The Russian invasion of Ukraine will likely lead to a sustained, long-term increase in the defence budgets of global governments. Arms manufacturers are well placed to benefit from this increase in military spending. New competitors are unlikely to emerge quickly given the intellectual property requirements and capital intensity of the industry. Investors in the sector could ride this wave successfully if thoughtful selection of equities is done at reasonable valuation levels.

The evolution of e-commerce

At the start of the internet era, the action of purchasing products online was often accompanied by the vision of a shady character ready to steal your credit card information. However, this image has changed in recent years, and e-commerce has become an entirely acceptable part of the buying process for the vast majority of consumers.

Over the past two decades, e-commerce has entirely revolutionised the retail industry. E-commerce was only a pipe dream a few generations ago, and now it’s one of the most popular ways to shop. From its humble beginnings in the 1970s, to when people first began creating e-commerce websites in the 1990s, to its explosion of new technology and popularity in the 2010s, e-commerce has evolved over its lifespan to become the ubiquitous part of shopping is today.

This is just the first 40 years of e-commerce’s existence. The last decade has seen levels of change and growth in the industry no one could have predicted.

The evolution of e-commerce started slowly. As we entered the 2000s, the majority of innovation in the industry came. However, as we enter the 2010s, e-commerce has exploded in both growth and popularity.

Today, e-commerce is a trillion-dollar industry. In 2020, global e-commerce sales topped $4.13 trillion, an 18% increase from 2019 —more than 73% of total sales were on mobile devices in 2021. Globally, around one-third of people now make an online purchase at least once per week, and China remains the top e-commerce market globally, followed by the US, UK and Japan.

The impact of e-commerce

The impact of e-commerce is far and wide, with a ripple effect from small businesses to global enterprises.

1) Large retailers are forced to sell online

For many retailers, e-commerce has expanded their brand and positively impacted their bottom lines. But for retails who have been slow to embrace the online marketplace, the impact has been different.

2) E-commerce helps small businesses sell directly to customers

For many small businesses, adopting e-commerce has been a slow process. However, those adopting it has discovered that it can open new doors and opportunities. Pre-pandemic (Covid), small businesses were working to expand their online presence. Today, 23% of small business owners feel that they have to strengthen their online capabilities to survive in a post-pandemic world. Another 23% of small business owners have created a website or updated their existing one since the start of lockdown.

3) Business-2-Business companies started offering Business-2-Consumer-like online ordering experiences

B2B companies are improving their customer experience online to catch up with B2C companies. This includes creating omnichannel for B2B and B2C touchpoints and personalised customer experiences.

4) The rise of e-commerce marketplaces

E-commerce marketplaces started with giants like Amazon, Alibaba, and others worldwide since the mid-1990s. In South Africa -Takealot that only launched in 2011.

In this chart, we can see that Amazon is the outlier in regards to e-commerce growth:

By offering a broad selection of products and convenience to customers, these large companies could scale up rather quickly through innovation and optimisation.

5) New jobs are created, but traditional retail jobs are reducing

Over the past 5 years, jobs related to e-commerce has increased two-fold. E-commerce jobs are up 334%, adding more than 178,000 jobs since 2002.

The flip side of this is that uptick in efficiency paired with a shift away from traditional retail may lead to job losses or workforce reduction. As with any major market shift, there are both positive and negative impacts on employment.

6) Customers shop differently

Online retail (omnichannel) has had a significant impact on customers. It is revolutionising the way modern consumers shop. 27.6% of the world’s population prefer to shop online rather than in-store. In other words, more than one out of every four people is an online shopper.

Millennials are the largest demographic of online shoppers (67%), but Gen. X and Baby Boomers are close behind, with 56% and 41% respectively participating in online shopping.

7) Social media lets consumers easily share products to buy online

E-commerce has made an interesting social impact, especially within social media. Today, shoppers discover and are influenced to purchase products or services based on friends’ recommendations, trusted sources and social media influencers on platforms like Facebook, Instagram, Twitter and Tick Tock.

8) Global e-commerce is growing rapidly

The future of e-commerce is looking bright. By 2025, the global e-Commerce market is projected to reach $4.2T in revenue.

The fast-growing e-commerce market is evolving just as quickly as it is expanding. With rapid innovation in the e-commerce landscape, this space could look vastly different in the future.

E-Commerce trends that are transforming the future

Omnichannel Shopping

Most consumers research a brand online before shopping online or in a physical store. Because the consumer now has more than one touchpoint across various devices, it is becoming more critical for businesses to integrate their channels to provide a smooth and holistic shopping experience. That is what omnichannel shopping aims to do – seamlessly integrate a company’s physical and online channels. Omnichannel strategies can be a valuable revenue driver. According to research by Google, omnichannel strategies can help generate an estimate of 80% of a business’s in-store visits.

Artificial Intelligence (AI) and Augmented Reality (AR)

AI & AR are transforming e-commerce with Artificial intelligence-enabled chatbots, virtual assistance, AI-enabled personalised shopping, and AR-apps that help to replicate the physical store online. These meta platforms would ideally provide an easier and more enjoyable shopping experience. These technologies are impressive on their own. However, combining them to this level elevates the shopping experience.

New Payment Options

Seamless payments options are part of the process to make online shopping more convenient. Therefore, it is crucial that customers are provided with a variety of payment options at checkout to reduce cart abandonment. These may include:

  • Digital wallets
  • Mobile payments
  • Cryptocurrency

The rise of Visual Commerce

We live in a world of information overload, meaning brands are constantly competing for consumers’ attention. That is why visual communication is more critical than ever. Businesses use visual tactics like videos, high-quality photography and AR to keep customers engaged. Visual commerce can help drive revenue. According to a study by one of the largest e-commerce platforms, Shopify, customers who view a product in AR were 65% more likely to make a purchase.

Data-Driven, Dynamic Pricing

Dynamic pricing is when businesses adjust pricing to reflect consumer demand. While it is not a new phenomenon, AI and new technology have made it more accurate and accessible to online platforms. Companies like Amazon and Takealot have already implemented the technology to help them optimise their pricing strategies to boost earnings.

10 Largest e-commerce platforms in the world by revenue

*For 2021 [Source: https://www.markinblog.com/largest-ecommerce-companies/]

It might be hard to believe, but even with the growth that e-commerce has already made, the industry is positioned for massive future growth. At the same time, another massive shift is the increase in innovations in technology. While 100% online shopping is still a way to go, the demand for e-commerce is set to rise.


  1. The Evolution of Ecommerce Timeline by Christina Marfice {https://www.plytix.com/blog/evolution-of-ecommerce-timeline]
  2. Evolution Ecommerce by Sarah Wai [https://www.tributemedia.com/blog/evolution-ecommerce]
  3. Visual Capitalist [https://www.visualcapitalist.com/5-trends-shaping-the-future-of-ecommerce/]
  4. Ecommerce [https://www.bigcommerce.com/articles/ecommerce/]

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