House News:
In the blink of an eye another year has gone by and once again the cliché: “I cannot believe how fast this year flew by”, is a point of conversation at many a client visit and year-end function. Does time fly because we get older, busier or more stressed? A quote which I thought very relevant for this time of year by Michael Altshuler reads: “The bad news is that time flies. The good news is that you are the pilot.” This quarter has thankfully been relatively quiet in respect of any changes, or news, at our office. We have all been very busy preparing for our shut down in December 2013 and are looking forward to our Christmas break. Our offices will close on Friday, 20 December 2013 and will be up and running again on Monday, 6 January 2014. Whilst 2013 has been a year of many changes, we are all prepared and very excited for the challenges that lie ahead. Please don’t forget to visit our website (https://www.finlaw.co.za/) for our latest newsletters and updates.
The markets in the last quarter:
The last quarter, ended November 2013, has seen a great improvement in our markets when compared to the three months ended August 2013 (for a reminder please refer to the August newsletter on our website – https://www.finlaw.co.za/volatile-markets-uncertain-times-end-august-2013).
In the past 3 months our local share market as well as the USA, UK, European and Japanese markets have improved – this all despite the United States Federal Government 16 day impasse which ended up with USA simply continuing to ‘kick the can’ down the road. The graph below shows you the positive progress in the above markets valued in ZAR. There is still some uncertainty in the Euro Zone but there is far more optimism compared to the periods in 2011 and 2012 when fear was rife that the currency union would disintegrate – Germany is to remain an “anchor of stability” in the Euro Zone. Although we have seen a slight decline in China’s growth, analysts remain confident that China is able to maintain annual growth of between 6% and 7% over the next decade. While this is slower than what China achieved in the previous 30 years, it still represents a strong growth by most countries’ standards. Continued growth in China bodes well for RSA, as China is South Africa’s largest trading partner, making up over 14% of all merchandise imports and almost 12% of all product exports, excluding gold. 
We may experience some volatility in the new year should the USA not make any meaningful agreements on budget cuts before the debt ceiling deadline on 7 February 2014 and coupled with our local 2014 elections we could be in for a slightly bumpy ride over the 1st and 2nd quarters of 2014. There is definitely a general improvement in macroeconomic conditions and global economic growth should accelerate in 2014, as growth picks up in the US and Europe.
A Consensus View of the Market:
A report done by Glacier (Sanlam), which collates the performance expectations of leading South African Asset Managers, including the likes of Coronation, Investec and Momentum, over the coming 12 months was released and definitely provides for some interesting reading. It is still very clear that cash is expected to return below 7% and with inflation at nearly the 6% mark(still very much a long-term concern) at the end of November 2013, this is definitely the asset class to avoid for long term real returns. 85% of the Asset Managers who completed the survey are of the opinion that developed markets will outperform emerging markets over the next year. This statement has been reiterated at all the roadshows which we have attended over the last few months. We, at Finlaw, are also of this opinion and hence we think that global equities should form the cornerstone of any South African portfolio, where long-term growth is required. 82% of the Asset Managers believe that our local equity market is overvalued and we are very aware of this when analysing our clients’ portfolios (this was also discussed in the August 2013 newsletter). We will be doing periodic asset allocations to look at rebalancing some portfolios which we think are overweight local equities.
Conclusion:
Although there seems to be an overall improvement in markets globally, we are still very concerned about how vulnerable and volatile our local markets are. We also need to remind you that the investment returns which we have experienced over the last decade, are unlikely to be repeated going forward. However, we urge you to be patient and ride the wave with us, as we sail through these rough waters.
We wish all our clients and their loved ones, near and far, a very happy festive season and look forward to working with you in 2014.
As always please don’t hesitate to contact us for assistance.
Kind regards
Stacey Lancaster – end November 2013.
Finlaw Consulting
“We must use time as a tool, not as a couch.”
John F. Kennedy
