Volatility is still here, what opportunities are there?

Oil price higher, the dollar still weak, markets volatile

Local Economy: Stockmarkets worldwide continue to show significant volatility. The JSE ALSI index ended Friday on 57582, a 9.6% yr on yr increase. The Index was last at this level 10/10/2017. If you’re in ETFs you will ride out this volatility and will have seen your ‘paper profits’ drop quite nastily in the last quarter, an active manager will take advantage of the dips in the market to buy shares they think are going to grow – with additional fees and of course with mixed success. There are pros and cons to both approaches, but the very large (well known) Unit Trusts (with higher fees) often end up with so much of a stock that they end up on the board of that company. This can hamper their trade in that share as it could be seen as ‘insider trading’. Cyril has been running an international roadshow talking up foreign direct investment. The elephant in the room (appropriation without compensation AWC) is wearing some heavy duty camouflage but probably isn’t fooling too many. Calming fears by stating that changes will only be done “within the constitution” is disingenuous when the ANC with the EFF have the numbers to change the constitution. What is left of the euphoria is thanks to a bite-sized understanding of how SA Inc actually works.

Offshore: Globally, there is the potential of a China/US trade war – which would have global implications continues to loom over the Western economies. Macron is in the US this week trying to persuade Trump that a trade war with ‘allies’ is short-sighted. As economies continue to show improvement, interest rates are likely to rise. This is important because if the West goes into another recession one of the tried and trusted ways of boosting consumer expenditure is by cutting interest rates. You can’t cut them if they are already almost zero, which has been the norm for nearly a decade. It is going to be a delicate balancing act, consumers in the US have taken on record levels of debt, mostly because of almost zero interest rates, and once these rates rise there is going to be a significant increase in default and foreclosure. With employment levels at historical highs, probably at the maximum level because there will always be individuals who are unemployable for a whole host of reasons, including redundant skill sets, this is unlikely to be as devastating as it was in 2008.

Exchange rate: The Dollar continues to be weak, and the GBP came off its highs last week. Our ‘strong’ Rand continues to be just Dollar weakness, and you should look at the broader basket of exchange rates before clapping Cyril on the back (see the table below). The Rand/Dollar closed the week on R12.09, Rand/GBP on R16.94 (will it hit R17 again?) and Rand/Euro on R14.83 (back to R15?)

Indices: While all commodities are moving slightly higher, it is the increase in the price of oil that is most likely to have an impact on us consumers. In dollar terms, it is up from $52.96 this time last year to $73.97 today and that is going to hurt. This almost 40% annual increase is going to hurt our wallets at the pumps and have a ripple effect throughout the economy and impact on inflation. OPEC seems to be confident that we will see triple digit oil prices again soon – and this will have a nasty effect on our inflation. Is this price rising too far too fast? Remember back in 2008 when oil hit the $145 level, it plummeted to $40 in 6 months. OPEC had a $70 target to drop the production cuts, but (not surprisingly) having reached that level the goal posts have changed yet again. Will greed be their undoing?

Action: Inflation down below 4% ( first time since 2011) but oil price will impact that negatively. VAT and other increases will also have an impact.

Dawn Ridler, CFP®, BSc Hons, MBA,

Founder, Kerenga – Wealth Ecology


By | 2018-05-02T13:55:00+00:00 April 23rd, 2018|Sake|