Thank you for attending the Brenthurst Wealth and Moneyweb South Africa Quo Vadis? Seminars, where we explored the current political and economic environment in South Africa and how this affects the investment outlook.
The rather dire economic outlook is well documented. The impact of a severe drought, political drama, the commodity cycle downturn, currency weak-ness, slow global economic growth and how this impacts South Africa makes the headlines almost every day.
DR FRANS CRONJÉ, CEO of the SA Institute of Race Relations (SAIRR) elaborated on the dismal state of the local economy and proposed a new strategy for growth at the SA Quo Vadis? Seminars. He did not mince any words in his critical review of the economy and the political price to be paid for this.
“As people get poorer and lose hope, they also lose their once solid confidence in the ANC and the ruling party would be wise to acknowledge that several of its current policies are undermining job creation, economic growth and securing growth in foreign direct investment,” Cronjé said.
He proposed four goals for the country:
- Increased foreign capital flow / investment
- The development and maintenance of critical infrastructure
- Higher economic growth that can support job creation
- The support of disadvantaged and poor people to at least get on the ladder of economic activity while social protection is maintained
Cronjé pointed out that the sustainability of social grants is coming under pressure just as dependency on it is growing. Tax revenue is stagnating and the government will find it difficult to maintain current payment levels with very little room for meaningful increases.
He noted however, that it is unlikely that any economic progress will be made in the current climate of political uncertainty.
“The ANC wants the party to unite behind the selection of one leader in December next year but it seems increasingly unlikely that the political upheaval will calm down much before 2019. The policy uncertainty looks set to continue and issues like property rights and changes to labour laws are not likely to be cleared up any time soon,” Cronjé stated.
“The uncertainty around property rights is a significant deterrent for foreign investors and this has a noticeable impact on growth prospects. Without growth and job creation social instability will continue unabated,” he said.
PAUL HANSEN, Director Retail Investing at Stanlib, elaborated on local and global market movements and explained how this affects investment themes and decisions.
“Although markets have had a tough time of late and a correction was evident, opportunities are still available where returns can be achieved.
For instance, global listed property now looks cheap in relation to bonds. Opportunities in especially the USA are worth looking at,” Hansen said.
“There is a great deal of pessimism about, but there are also opportunities. The Stanlib Balanced Fund team thinks the bull market is over or in the very late stages so they are holding a low allocation to equities. Their priority is capital preservation because they think it is late in the day for markets in the up-cycle. I, however, still believe in the bull market and that opportunities can be found, he stated.
MAGNUS HEYSTEK, Investment Strategist and Director of Brenthurst Wealth, highlighted the many factors that are wreaking havoc on markets:
- ELECTION YEAR IN THE USA AND THE UNKNOWN FACTOR OF DONALD TRUMP SHOULD HE BE ELECTED
- THE THREAT BY GREAT BRITAIN TO LEAVE THE EUROPEAN UNION; THE BREXIT ISSUE
- ECONOMIC SLOWDOWN IN CHINA AND THE POOR PERFORMANCE OF THE SHANGHAI STOCK EXCHANGE
- THE DOWNTURN OF THE COMMODITY CYCLE
- ALARMING AND GROWING UNEMPLOYMENT IN SA. IN THE LAST QUARTER THE ECONOMY SHED A STAGGERING 355 000 JOBS
- THE FALLING COMPETITIVENESS RANKINGS OF THE COUNTRY
- BUSINESS CONFIDENCE AT A 15 YEAR LOW
- CONSUMER CONFIDENCE AT A 12 YEAR LOW
- RISING INFLATION, NOTABLY FOOD INFLATION
- A SHARP INCREASE IN GOVERNMENT DEBT AND THE RESULTING SHARP RISE IN DEBT SERVICE COST
“The threats to the protection and building of wealth are many. A shrinking tax base, land reform, rising debt levels, water and food shortages. The rand depreciation under the Zuma Administration has been breath-taking, going from R8.36/$ in 2009 to a peak of over R17/$ during the Nenegate debacle.
The deterioration of the rand during the Zuma administration now eclipses the annual compounded decline of 11.2% during the infamous PW Botha presidential term.
The threat of arresting the Minister of Finance, Pravin Gordhan and the inevitable downgrade to junk status is looming large,” Heystek stated.
Turning to property investment, the cornerstone of the investment strategies of many South Africans, Heystek pointed out that property values have not increased in real terms for several years now. He also noted that investment properties are currently delivering negative returns.
Given the risks and poor performance of a range of asset classes, notably the local bourse, Heystek advised that investors seek offshore opportunities.
“There are many sectors – for instance healthcare and biotech – and regions such as the USA where good returns can be found. Investors must diversify and widen their investment horizons in order to protect and build their wealth.
The JSE has not performed well over the past five years compared to other options and also has not kept up with inflation at all,” Heystek said.
“You have to move out of your comfort zone and consult with an accredited financial advisor to navigate this environment. Given the exceptional volatility experienced everywhere there are risks to be aware of. But it can be managed if approached in the correct way and suited to the needs of a particular investor. Returns are expected to be lower than what investors got used to in boom times. But positive returns are possible for those who seek opportunities outside South Africa,” Heystek concluded.