Part of my work as a wealth manager for my clients is to spend a great deal of time reading and researching markets and economic environments. In one of the reports I have just finished reading, Stanlib notes that economic growth has weakened in South Africa. Well, it doesn’t take an economist to point that out when looking at all the businesses that have been forced to close in Hermanus. Times are tough out there for business and portfolios are reflecting that.
Stanlib comments that it is possible that although key economic variables (growth and inflation) would support a further interest rate reduction of 0.25%, the Reserve Bank has adopted a “wait-and-see” stance. It is concerned about the market’s reaction to Eskom’s restructuring, the medium-term budget policy statement (MTBPS) at the end of October, and the credit rating decision by Moody’s, which is currently scheduled for 1 November. This would suggest that a rate cut is still possible at the November 2019 MPC meeting, under the assumption that the upcoming economic policy announcements do not have an adverse effect on the exchange rate and government bond yields. If that rate cut does come, use it wisely and continue to pay off any debt as quickly as possible.
After a strong rebound in growth in all economic sectors in the second quarter, incoming third quarter data has been reasonable – wholesale trade and manufacturing having a positive month. However, leading economic indicators and confidence surveys are painting a grim picture. Business sentiment (an indicator for future investment) recorded its lowest level since 1999. It appears that South Africa’s economic growth could meet its projections of 0.6%. However, the focus is now moving to 2020 and 2021, which is likely to be revised lower, unless we see a significant turn in policy delivery and improvements in business and consumer confidence.
With all this economic data, it’s clear that government’s ability to implement structural reforms and partner with business is paramount in this country’s path to economic revival.
Right now, the investment sentiment is very much towards offshore investments. There are many articles commenting on just how good it is to invest overseas when compared to local investments. However, it is important to remember that there are cycles to investments.
As recently as June 2011 global equity investments had their worst three-year performance at -20%, while local equity funds were up a whopping 35% over the same three-year period.
In March 2009, local equity portfolios showed no growth, when measured over three years, while global equity portfolios delivered 10% in Rand terms. At the end of August 2019 local equity portfolios added only 3% over three years, while global equities grew by a little over 30% during the same time. * See graphic below.
Total return (not annualised)
|Three-year period |
|Local equity fund||Global equity fund|
|Total annualised |
return over 15 years
The eventual investment outcome of 14% per annum for the two different geographic allocations (local and global) can be explained by the exposure to equities as an asset class and the various market cycles. Diversification across geographic locations, however, meant that the journey to the investment goal was much smoother – when one geography struggled, the other one performed well and vice versa.
For many of you, all this economic information is probably boring, but the point is that the more things change, in many instances the more they stay the same. These are uncertain times, but history shows us that the future is always uncertain.
The key to maintaining and building wealth is to structure your investments and finances in such a way as to take advantage of positive moves when they arrive. Stay the course. Diversification across asset classes, investment strategies, investment houses and a good balance between local and offshore remains the one free lunch.
Janet Hugo CFP® – was awarded the Financial Planning Institute’s Financial Planner of the Year award in 2019. This award recognises excellence in all areas of financial planning and wealth management. She can be reached at 0861 888 987.