It is hard to believe that 2022 is almost over! We have survived what can only be described as a challenging and difficult year for us all. I think it is important that we all appreciate the magnitude of the events that have occurred this year – the Ukraine-Russian war, interest rate hikes, politics and the list goes on. It is also important that we remind ourselves that markets and investors alike need time to adjust to this ‘new’ normal.
The graph below [https://www.mandg.co.za/insights/articlesreleases/the-history-of-the-jse-1950-2021/# – please use this link], released by M&G [previously Prudential] depicts the growth of R 100 invested in the JSE [RED line], inflation, [ORANGE line] and cash [GREEN line], over a period of 71 years. Although an unlikely investment horizon for most of us, what remains consistent is the upward trajectory of performance over time. This, despite markets experiencing major events over the last 7 decades [including but not limited to the 1973 Market Crash, Black Monday, Dotcom Bubble Burst and more recently the Global Financial Crisis and Covid Crash]. R 100 invested in the JSE in 1950 would be worth a whopping R 2 358 310 at the end of 2021! The R 100 invested in cash would be worth R 26 640, slightly outperforming inflation where the R 100 would be worth a meagre R 14 421. These numbers are a clear reminder that risk and volatility do pay-off over time.
We have been in the doldrums before and while there may be a temptation to sell out of the markets, now is the time to focus on the long-term growth and objectives of your investment.
World Banks continue to raise interest rates in an effort to curb high inflation numbers. Both the UK and the US reached inflation numbers of 9.8% [see graph to the right] and 7.7% respectively. The SARB [along with most other countries across the globe] have too been compelled to raise interest rates. Our CPI number as measured at the end of October 2022 came in at 7.6% [much higher than the SARB’s inflation target of between 3% and 6%]. Always a bitter pill to swallow as a SA consumer who is largely under immense financial strain.
The general objective of investing is to beat inflation [at the very least] and while we are aware that inflation is necessary in the world of growth and investing, how much inflation is enough? We will have to trust central banks to answer this question correctly! Low inflation that continues for too long can result in a shrinking economy leading to job losses and closure of companies. The opposite occurs when inflation trends higher as companies rake in profits through higher prices and higher turnover. Higher inflation is currently happening across the world and as central banks [who are responsible for monetary policy] react, interest rates are increased to try and curb consumer spending and counter rising inflation.
Unfortunately, current asset class returns, [which have been disappointing] impact historical returns. While 2022’s annual return may have brought down your average overall portfolio return, this does not automatically mean a bad investment – it is simply a measuring point for future returns. As long-term investors, we encourage all our clients to remain patient and stick to their investment strategy – markets are now relatively cheap and offer fantastic buying opportunities!
In other news, the ANC has confirmed that they are ready to hold the 55th national elective conference in Nasrec, Johannesburg in December. More than 4 500 delegates are expected to attend and include voting delegates from branches across the country. While the Phala Phala saga continues to haunt the incumbent President Cyril Ramaphosa, he remains resolute about running to lead the party for a second term. Markets dread political instability so let’s hope the outcome is a good one! We thank you for your ongoing support and invite you to contact us should you wish to make an appointment or chat over the phone. Wishing you and yours a safe and relaxing festive season – we look forward to seeing you all in 2023.
From Stacey Barron and the Finlaw Team.
Please note that our offices will close at 14h00pm on Wednesday the 21st of December 2022 and will reopen on Tuesday the 3rd of January 2023 at 08h00am.
