Rudderless? August 2018
In the last three months, from end May to end August 2018, our country seems to have been rather like a rudderless ship – turning on itself instead of powering away to a brighter destination over the horizon. Sadly, this state of affairs is likely to last until after the 2019 elections. Of course – what happens in the election is extremely hard to predict with ALL the political parties in “trouble” in one way or another. The ANC remains deeply divided – with continued power struggles running under the surface in many of the Provinces. The EFF seem to have had the wind taken from their sails – no more Zuma to rant and rail about – land expropriation “hijacked” (in their view) by the ANC – some leadership tensions and coalitions at municipal level in disarray. The DA is mired in public spats with some of its leaders and is on the cusp of losing power in major metros through the breakup of loose “coalitions”. The Anti-Zuma Factor had galvanised some of these at the outset – but that glue is now gone!
Ramaphosa, due to his very slim majority victory in December 2017 [179 votes out of 4,701 cast], has no option but to tread lightly within his party until he can obtain a favourable victory at the 2019 polls. If he succeeds he will have a full 5-year term to get some solid runs on the board, curtail the rampant corruption in Government, make real progress in growing the economy and improving service delivery to the folk who need it most.
We are including an updated chart from our February Newsletter. Many things impact on our markets, often driven more by Global events – and yet local political events leave their mark as well. Once again, the shaded green area is our local share market, the shaded blue – our bond market and the shaded yellow – our listed property sector.
There is a pleasing uptick across all sectors in the closing two weeks of August which will give some cheer to our client portfolios under the current review. All our clients have some degree of offshore investment exposure – and they will be particularly pleased given the growth in real money over the past quarter – and the flattering ZAR values provided by the sharp decline in the local currency since our last reviews at the end of May 2018 (R12.55) or end of February 2018 (R11.64) … down at R14.59 end August 2018! However, as stressed before – ignore the ZAR values for direct offshore investments and focus on the growth in USD, GBP or EUR (whatever your preference). The ZAR exchange rate is only relevant when and if you repatriate some of the offshore funds. The ZAR is down by almost 20% so far this year – and more likely to weaken further as we stumble along to the 2019 elections. Moody’s [the only rating agency which still records us at “investment grade”] has issued a negative cautionary – so a downgrade in December may well be expected.
The American market continues to power ahead – with record highs just before end August. The DOW Jones [an index of only 30 price-weighted shares] is flat so far this year; the S&P 500 [includes 500 listed shares] has gained over 9% while the Russel 2000 Index [smaller companies] has gained almost 13%. The NASDAQ [mostly technology companies] is up by 15.7% so far in 2018. The USA market growth added a positive 1% in August alone to the MSCI World Index [Global Funds] which is up over 5% so far this year in Dollars.
India is also a strong contender with positive market returns – while China suffers somewhat under the Trump Trade Wars. Europe remains flat with both political and economic uncertainties hampering their prospects of growth. Emerging markets have taken a bit of a hammering this year – down by almost -9%.
Love him or hate him – “The Donald” continues tweeting his way into the Global Media! As unpredictable and precocious as he may be – credit must be given to him for the long overdue reduction in Corporate Tax rates in the USA and for tackling the imbalances created in historical trade agreements. The World is beginning to understand his “tactics” better and the role the “White House” [and sometimes the Court] plays in tempering his “demands” so they end in more workable solutions. He is certainly delivering the kind of changes he promised in his election run up – although one can’t help hoping he doesn’t go too far and in the end damage [“blow up” – as in when he was “Googled” above] the World’s largest economy. So far the USA has benefitted – while Emerging Markets [notably China] have been unsettled. Breaking the Mexico NAFTA impasse is a good example of how sense will no doubt prevail. Hopefully Canada will be able to strike a deal soon too.
Patience and tenacity …
As investors we need to remind ourselves to be patient and to stick to our long-term strategies … despite the short-term volatility in currencies and markets. Looking back over time often helps – and sometimes points to mistakes we could have made but did not make when troubled by global events in the past. Ten years ago  the World markets hit rock bottom – the biggest fall in 70 years – yet we remained invested through the trough and enjoy the substantial rewards of having done so. Those who retreated to cash will have lost out on meaningful growth – with few if any successfully timing their re-entry into the markets.
That said, fine tuning strategies to meet changes in personal circumstances is always wise, so we invite you to bring us up to date with changes in your life as we continue to monitor the portfolios you entrust to us.