Local Economy: The JSE has ‘recoupled’ with the US stock exchanges, which is almost reverting to the norm, thanks to fewer bad news stories out of RSA Inc. The Rand, however, has sharply depreciated against the Dollar and this is not Dollar weakness. The rising oil price, when combined with Rand depreciation, is not good news for the transport sector and inflation, which has been encouragingly below 4%. Resource prices are rising nicely for the first time in a long time, and because our economy is still so closely linked to the price of resources, this has a positive impact on our JSE. Resources are priced in Dollars, so with a Rand depreciation, the dollar remittances to the country are worth more in Rands. If you want ‘off-shore’ exposure in your portfolio to take advantage of the currency movements, you just have to invest in the JSE, you don’t need to put your money offshore. (There may be compelling other reasons for taking money physically offshore of course which have more to do with the concern of ‘hell-in-a-handbasket’ scenario planning than hedging.)
Offshore: Trade wars continue to dominate the headlines, along with the Korean detente. This is probably thanks to Trump, not so much because they fear him but the ‘enemy of your enemy is my friend’ scenario. Whether we can believe the N Korean leader or not though remains to be seen. The offshore stock exchanges continue to be very volatile with continued concern about over-valuation of shares, combined with decreased ‘free cash flow’ (replaced by debt.) Free cash flow has historically been an important indicator of the resilience of a company – does it not matter anymore? The US government bonds are also inching up, and speculation on this is exacerbating the volatility.
Exchange rate: The Rand depreciated quite sharply last week. The Rand/Dollar ended on R12.38, Rand/Euro on R15.00 and Rand /GBP on R17.24
Indices: The Brent crude price continues up despite considerable additional capacity coming out of the fracking sector. When combined with the weaker Rand this is not good news for us.
Action: When markets and currencies are volatile, there will be pockets of opportunity. Diversify your wealth, not just by asset class (stocks, bonds, REITs etc) but by investment type (ETFs, Unit Trusts, Stocks, Money market, Retirement funds etc).
Dawn Ridler, CFP®, BSc Hons, MBA,
Founder, Kerenga – Wealth Ecology