The Paradise Papers have exposed royalty, politicians and rock stars alike. After two of Trump’s ex-aides were implicated in the Russia probe, the Paradise Papers have shown further links between Club Trump and the Russians. In other news, the Saudi Crown Prince has arrested royals, ministers and businesspeople in an anti-corruption purge – could something similar be in South Africa’s future?
The importance of a disciplined approach to investing
During recent months the JSE ALSI has surged following a few years of generally disappointing returns. This surge, together with a weaker rand, explains why our Dynasty Funds have been performing so well of late. It is interesting to note that in a year-to-date survey, ASISA statistics reflect that the only sectors to experience net positive inflows were cash and fixed income funds. For these investors, it would have meant missing out on a couple of exceptionally positive months in the equity market. For instance, if you were invested in the ALSI and missed July and October, you would have forfeited 13.95% of the 20% year-to-date return!
Part of our role as Wealth Managers is to encourage a disciplined approach in adhering to a properly defined asset allocation model. Industry experience shows it is virtually impossible to anticipate and enjoy market surges without remaining invested in equity as an asset class.
Our article last year, entitled Time-in the Market, illustrates typical investor behaviour and the value that can be lost by breaking discipline.
- The Paradise Papers, a massive leak of confidential information from the Bermuda Law Firm Appleby Group Services Ltd., has implicated many in offshore dealings and tax avoidance. People facing questions will be representatives from the British royal family, Apple, Nike, Uber, and Donald Trump’s Commerce Secretary Wilbur Ross, just to name a few.
- The Saudi Arabian Crown Prince went on an anti-corruption purge arresting princes, billionaires, ministers and former officials. Prince Alwaleed was among those arrested – he is the world’s 50th wealthiest person and a significant shareholder in Citigrioup Inc. and Apple Inc. Some reports have arisen that this may be a way to silence the Crown Prince’s rivals and is not as noble an action as initially reported.
- In the US, October saw 261 000 jobs added as the unemployment rate fell to 4.1% but there is still no wage growth
- The Bank of England (BOE) increased interest rates for the first time in ten years from 0.25% to 0.50%.
- In the European Union, GDP growth for the third quarter was impressive, gaining 2.5% year-on-year. The unemployment rate continued to fall in September, coming in at its lowest level since 2009 at 8.9%.
- South Africa is still performing poorly regarding unemployment levels. Unemployment came in at 27.7% for the third quarter of 2017 – this is the highest level since the global financial crisis in the first quarter of 2008. When the definition of unemployment is expanded to those who have been discouraged from seeking work the percentage increases to 36.8%. The most concerning figure is youth unemployment (people under 25 who are seeking work), which is at a crisis level of 64.5%.
- On the 24 November 2017, S&P and Moody’s will review South Africa’s credit rating. Further downgrades may be possible considering the disappointment of the mid-term budget speech, but we anticipate that the rating agencies will wait until after the ANC Electoral Conference for clarity before acting.
- Foreigners own 40% of all South African government bonds. If we get downgraded there is likely to be a sell-off, especially considering that the Citi Group World Government Bond Index will exclude SA if both S&P and Moody’s rate us as junk on local currency bonds.
- The JSE All Share Index has returned 20% year-to-date, followed by Listed Property at 11.5%. Cash is up 6.3%, and the All Bond Index has gained a modest 4.2%.
- Although the rand has declined by only 4% in 2017 against the US dollar, it has been an extremely good period for rand-hedged shares. For instance, Naspers has gained 73.9%, Richemont is up 44%, British American Tobacco 19% and AB InBev 19%, all year-to-date.
- The rand has depreciated by 15.5% in 2017 against the euro and 10.28% to the pound.