South Africa is facing an ominous debt trap, which creates a lot of anxiety about a potential ‘raid’ on formal savings to keep government going. In response, there has been much speculation in the press and social media platforms about prescribed assets – and in particular – the possibility of amending Regulation 28 of the Pension Funds Act to include provision for investment in infrastructure.Read More
Around the world, various governments have embarked on quantitative easing (QE), coupled with support programmes to help alleviate the disastrous economic impact of the COVID-19 pandemic. However, QE manifests as support for financial markets, rather than for the ‘real economy’. Notably, QE is a tool whereby the rich get richer – from rising stock prices – in the hopes that the wealth effect will see them spend money that will trickle down into the real economy. As it stands, the real economy is in dire trouble – and business profits are falling – whilst the global financial economy is in an upswing with a stock market recovery that is in full force. Equity prices are moving upward.Read More
The video below by James Downie from MitonOptimal provides some context around what has happened in markets in 2020 thus far. James provides some perspective on the major market influences South Africa investors have been faced with and what their impacts have been (and may continue to be).
My dream has always been to travel to Antarctica on an ice breaker. The vastness of the continent fascinates me. Having read numerous books on exploration to the South Pole, this continent had strong appeal. Although we crossed the Antarctic Circle, we were nowhere near the South Pole. Certainly, we did it in style when compared to Shackleton, the famed National Geographic Explorer who was the first to start these journeys.Read More
This year’s Budget Speech was arguably one of the most anticipated (and closely watched) in recent history. So, what stood out – and what should savvy investors know about it?
To begin with, Finance Minister Tito Mboweni surprised markets and promised to slash the sprawling public-sector wage bill.Read More
For market watchers and investors, the biggest surprise of 2019 was arguably the generally good performance of global equities. Overall, global equity prices were supported by the accommodative stance of monetary authorities. Also, interest rates were kept low – and even cut – in some geographical jurisdictions.Read More
I thought this Moneyweb article was an excellent summary of Finance Minister Tito Mboweni’s medium term budget policy statement, but if you can’t manage to hold your attention for the entire article, the post below from The Atlantic might explain why…
On the local front, the SA Reserve bank (SARB) cut the repo rate by 25bps to 6.5% in July. It was left unchanged in September. The domestic economy remains weak.
Average inflation was 4.3%, which was below the mid-point of the SARB target range.
The Rand traded in a volatile range – from a low of USD/ZAR 13.97 to a weakest level of USD/ZAR 15.50 in mid-August.Read More
While Archie tries to predict when the next-door cat will stealthily appear in his garden, investors try to predict the Rand/USD exchange rate. It is difficult to say who is having more success!
On 3 September, the rand broke through the R15/USD for the first time in almost a month, lifted by positive local news. SA’s GDP rebounded by a surprise 3.1% in the second quarter, avoiding the shadow of recession.
However, predicting the performance of the Rand over the short term is notoriously difficult… and prone to significant forecast error. One factor that has remained relevant in the last 10-15 years has been the role of commodity prices. In general, if commodity prices go up, the Rand strengthens – and visa versa. This suggests that in the absence of other guiding factors, watching the performance of industrial commodity prices is key (though this does not include energy prices and precious metals such as gold). In short, industrial commodity prices moving up provides a good indication of impending Rand strength (and visa versa).
Good luck Archie!
Source: Analytics Consulting
The appearance of a yield curve inversion has market watchers spooked…
Over the past few months, there has been a great deal of anxious chatter about the possibility of a recession in the US. Arguably, much of this fear stems from what is known as the ‘yield curve inversion’. Historically, yield curve inversions foreshadow a recession.Read More
Archie has a new designer collar!
As many analysts had expected, economic data has revealed that SA’s unemployment rate climbed to an all-time high of 29% in the second quarter of 2019.
On a more positive note, however, retail sales growth beat expectations for a second straight month in May. Retail sales are likely to get a further boost from the SA Reserve Bank, which cut the repo rate by 0.25% in July.
No wonder then, that Archie is splashing out on the high street!
The broader, global view…
Climate Change Controversy Dominates G20
While Archie shivers miserably with cold in Johannesburg, record high temperatures in Europe are again raising concerns about climate change.
Indeed, although trade has been the main focus of this year’s G20, the thorniest issue has been climate change – and what to do about it.
Following prolonged debates, the G20 eventually met French President Emmanuel Macron’s demand for a strong reference to the Paris Agreement on reducing greenhouse gas emissions –and also averted the threat of President Trump convincing Turkey and Brazil to join him in withdrawing from the Paris Agreement.
However, a statement of US objections was included….“The United States reiterates its decision to withdraw from the Paris Agreement because it disadvantages American workers and taxpayers”.
I have always loved travel, and so I am thrilled to be adding some more travel articles to my blog. I think you will find this series of travel Q&A enjoyable, but also interesting, as we delve a little into how much things cost and how the economies in various countries are developing… or not.
This first Q&A is on Iceland… and how expensive a glass of wine is!Read More
With all this talk about trade wars and tariffs, Archie is concerned that he will not be getting any more toys…
There is still no clear sign of a de-escalation of US-China trade tension. To the dismay of many leaders, President Trump is still defending his tariff strategy. On the bright side, Jay Powell, Chairman of the US Federal Reserve, has signaled that the Central Bank is ready to cut interest rates if trade wars do hit the world economy. Trump is claiming that the Chinese will pay for the tariffs – which remains a highly disputed and controversial assertion. In fact, companies are expected to pass the extra costs onto the consumer.
No wonder then, that Archie is suffering from mild bouts of Trump-related anxiety.
Peter Sullivan recently celebrated a milestone birthday with his daughters in Beirut. He shares some interesting insights about his trip with us in the following article.
Before going to Beirut to celebrate my 70th birthday with my daughters, I met Lebanon’s Ambassador to South Africa. He asked what I knew of his country. “Not a lot” I confessed.
“It is smaller than the Kruger Park. Sea and beach one side, then mountains, then a valley, then higher mountains for skiing. On small west side, Israel border. All around rest of country, Syria. “You will feel you are in the Western Cape. Wine estates, green, lovely valley, mountains.”Read More
With so much negativity in the news of late, coupled with an election year, investors have understandably been jittery. A cautious investment environment – with many unsure of the best strategy to pursue, has reflected this sentiment. With this in mind, now is a good time to revisit the basics of smart, long term investing.Read More
In a socio economic environment characterised by volatility and deep-seated uncertainty, local investors are understandably spooked. Coupled with three years of poor returns from shares and listed property, many investors are (naturally) questioning why they should not cut their losses and switch to cash. This anxiety was exacerbated following the worst December for US equities since the Great Depression. Yet for savvy investors, there is always a silver lining to market dips.
Let’s take a closer look at the trends…Read More
For local investors, December capped an incredibly challenging year. It was the first time in many years that all major global asset classes produced a negative real return. Notably, emerging markets seemed to bear the brunt of the risk-off environment throughout the year – which meant that it was another very disappointing year for investors on the JSE. Tellingly, the FTSE JSE All Share Index closed 2018 with a negative total return of -9.08%.
In South Africa, low returns continue to be off-putting for investors, but the case for staying the course remains strong. On a macro level:
With the JSE All Share reaching 60 127 this morning (29/08/2018), it is valuable to revisit some basic principles that make for successful long-term investment strategies.
Indeed, it is easy to forget that in April this year the JSE All Share dropped to 54 602 (4/4/2018). This fact highlights the inherent futility of trying to time the market.
I have mentioned this in previous articles “Staying Invested Vs Timing Markets”. In short, it is always better to stick to well thought out investment strategies and to avoid emotional reactions to negative market movements.
The graph below is a powerful illustration of why time in the market is more important than trying to time the market! (click on the graph to enlarge)
Halfway through a rather turbulent political year, domestic asset classes are starting to reveal that the Ramaphosa-led government is facing significant headwinds. Although a tough budget stance managed to stave off a credit rating downgrade, there is still a long way for the local economy to go before investors can rest easy…
Stagnant market calls for a cool head…
Over the past three years, most SA investors have been disappointed with their returns. This is unsurprising, given the figures. For example, the average SA Multi-Asset High Equity unit trust did 3.4% per annum over the three years ended March 2018. Overall, the available asset classes have delivered poor returns, as can be seen in the table below.
Without doubt, it has been a difficult couple of months for the global financial market, with South Africa also taking a knock. The heated rhetoric between the US and China has been fanning fears of a full-blown trade war – and this has resulted in a correction in the equity markets.
Below find a graph prepared by Coronation Fund Managers on expected asset class returns and inflation for the next 10 years. This is an updated graph on two previous articles “Looking ahead at Markets and Inflation” / “Expected Asset Class Returns over the next 10 Years”
I have mentioned on this blog before that timing the market can be costly “Why Timing the Market Can Be Very Costly” and why it is better to stay invested rather than trying to time the markets “Staying Invested Vs Timing the Markets”.
In this Moneyweb article, Patrick Cairns argues that cash can be the riskiest asset of all because one needs to be exposed to higher growth assets such as equities and listed property in order to produce inflation beating returns “Why Cash Can Be the Riskiest Asset of All”.
Cryptocurrencies like Bitcoin and Etherium (see article “Demystifying Virtual Currencies”) have generated a great deal of interest because of their spectacular gains (and losses). Investors are trying to determine if cryptocurrencies are an investment opportunity, a bubble or the end of money as we know it. In his considered and detailed report Brandon Zietsman, CEO of PortfolioMetrix, argues that when investing in cryptocurrencies one needs to be clear-headed about the risks (a view with which I concur). Click here to read the article.
(An argument for sitting tight when the news is bad…)
While it is true that no one has a crystal ball for financial markets, there is some interesting research available that shows what has happened in the past during difficult times. Arguably, this research illustrates the point that often, the smartest thing to do is to wait! (click on the graph to enlarge)
Why stay invested?
With the Gupta-leaks revelations sending confidence to new lows and the battle within the ANC before the December conference continuing to dominate headlines, it is easy to imagine that political events ultimately drive stock market returns, however, the graphs below show that it is not political events but ultimately earnings that drive long term returns. (click on the graph to enlarge)
A combination of volatile politics and stagnant economic data made for a difficult period in the local context. Globally, there are signs of improvement on the macro economic front.
For local investors, the key is to not let the bad news overwhelm you – there are certainly upsides if you can stick to your guns and hold on to your investment strategy!
Amidst ongoing political and economic flux, investors are asking important questions as to the future of the Rand (and other emerging market currencies)…
In general, emerging market currencies, including the Rand, continue to be supported by the global search for better returns. However, SA risks are rising.
I recently attended an investment conference in London where I heard the well-known author and economist, David McWilliams discuss the global economy. He also shared with us his recent humorous YouTube video featuring President Donald Trump. It’s seven minutes long and it is worth taking the time to look at it. To view the video click here.
In South Africa and around the world, this quarter was a financial and political rollercoaster ride…
The SA Reserve Bank left the repo rate unchanged at 7% in November. In total, the SARB has raised interest rates by 200bps since January 2014. Notably, the SARB may be at the peak of its rate hiking cycle. At this stage, rate cuts are not expected in 2017.
Now is the time to practice the art of simply staying calm…
In a time of great flux and instability, many investors are (naturally) observing markets and the wider economy with anxiety and concern. Indeed, with so much volatility and nay saying, the natural inclination is to disinvest and sit on the sidelines.
For South African investors, it is critical to build in exposure to offshore markets. One of the primary reasons for this is that the JSE All Share Index is heavily weighted towards a relatively small number of shares. The key question then becomes: what is the optimal percentage of offshore exposure in a diversified portfolio?
Shaun le Roux from PSG Asset Management advises investors to keep calm amidst the chaos. (The following is an abridged version of an article from Moneyweb).
For South African investors, the headline news at the moment is almost universally bad. Politically and economically, the country is facing very challenging times.
I have mentioned previously on this blog that we are entering a lower return environment and looked at expected returns over the next 10 years “Looking Ahead at Markets and Inflation” (updated in December 2015 “Expected asset Class Returns over the next 10 Year”).
He may not be in Donald Trump’s league, but Archie can have bad hair days.
For while he is not yet ready for a comb-over, he can at times look as wild and woolly as a fund manager over-exposed in the wrong sector.