“Mayday – we have an emergency/ies?”:
Next year we will see elections taking place in the US, Europe, UK and in SA. The local elections have been described as the most crucial national elections since 1994! In the US, we may see two octogenarians [Biden and Trump] fighting it out for a chance at a second term as president. Despite being one of the world’s most stressful jobs, should they succeed, they will be in their mid-eighties at the end of their presidential term! The war in Ukraine rages on and Vladimir Putin is fully aware of the upcoming global elections where government and opposition parties are campaigning to cut spending support for Ukraine. Putin seems to be waiting for war fatigue to set in…South Africa’s seeming ‘neutrality’ on the war has unsurprisingly shifted to ‘Russian leaning’. NATO countries are our biggest trading partners – they buy our goods which creates employment; employment lowers poverty and crime and with any destruction of jobs, the exacerbation of our problems continue. Simply put, South Africa cannot risk being removed from NATO who stand in full solidarity with the people of Ukraine.
Eskom’s continued load-shedding remains a huge concern and an inhibitor to economic growth. We are all aware that load-shedding is necessary to avoid a complete collapse of the grid – a disaster we do not ever want to consider. Load-shedding has been implemented every day this year and the blackouts are not only curbing economic growth but constraining government revenue and stoking inflation. The Minister of Electricity, Kgosientso Ramokgopa, has confirmed that the government will deploy former Eskom engineers and energy experts to a number of power stations in a bid to improve the energy availability factor. President Cyril Ramaphosa has also promised to fix the energy crisis and has put in place measures to reduce load-shedding and to add more megawatts to the system. It seems the government has finally made the energy crisis a priority but there is still so much that needs to happen – let’s hope we see some ‘light’ and soon!
Mayday risks lowered:
We have been through a difficult period of continued high inflation and increasing interest rates. Food basket prices are up around 10% from a year ago and bond repayments up 35% since the rate hike cycle started at the end of 2021! The FED recently announced that rates are likely to stay on hold at their June meeting which may offer some reprieve to indebted South Africans as the SARB may follow suit. Although it doesn’t seem likely that interest rates are going to come down over the short-to-medium term, there is talk that they will stay on hold for longer as inflation numbers start to fall. South Africa’s annual inflation fell to its lowest level in 11-months to 6.8% in April, down from 7.1% in March and below market forecasts. Lower food and fuel price inflation as well as the SARB’s less accommodative monetary policy stance are key factors behind the decline. Inflation is projected to fall back within the SARB target range of 3%-6% during the second half of 2023. The graph below shows the cumulative increase in the cost of some of the sectors that have contributed to the total inflation number since 2008 – Eskom has been the major contributor, followed by Medical aid [under threat by the government seeking to be the single purchaser of healthcare for everyone in South Africa under the **NHI], while the remaining sectors have provided similar increases over the last 15 years. [On a side note, it seems ladies can keep shopping – prices of clothing and shoes have increased at a slower rate than hotel stays, cigarettes, and alcohol prices 😊]
Avert ALL Mayday calls [stay on the course]
Currently, the decision to invest in markets may seem rather daunting due to the current global situation and the continued volatility and uncertainty. A recent study of the South African market confirmed that three quarters of the time it is better to invest a lump-sum immediately rather than trying to phase-in or time markets. These results were almost identical to a similar study of the S&P 500 which found that 75% of the time, investing a lump sum in the US equity market outperforms dollar-cost averaging over 12 months. It is also good to be aware of what the opportunity cost is when investing immediately compared to timing the market perfectly – which most agree is an impossible task. During the study, it was concluded that there is a high opportunity cost to waiting for the best entry point. While, ‘perfect timing’ produces the best return outcome, the ‘invest immediately’ strategy came a very close second. The ‘worst timing’ strategy [buying when markets are high] materially outperformed ‘staying in cash’ – a point worth noting. Ninety One used return data of the JSE All Share Index from January 2003 to December 2022 and the ‘invest immediately’ strategy [slightly outperformed by the ‘perfect timing’ approach] generated an annualised return of 12.5% per annum over the 20-year period; almost 6% per annum ahead of the ‘staying in cash’ strategy which delivered an annualised return of 6.6%.
While there may be some volatility to grapple with on your investment journey, we will navigate this with you and ensure you reach your ‘destination’ safely through persistence and patience. We really do enjoy being on this journey with you and would love to meet with you to discuss any concerns you may have. We are here to help and assist you in achieving your investment objectives. Let’s hold on tight and stay the course…
