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.
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.
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).