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Market wrap 2016 – Could do better!

Week 52 2016

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Local Economy: The year might have ended with a fizzle in the global markets, you can’t help but marvel the dizzy ride the offshore markets have seen post-Trump’s election as if believing everything that comes out of his mouth. The truth of the matter is that it doesn’t matter if everything he says is BS, all that matters is that enough people believe him and pull the globe out of the funk it was settling into. Markets are far from perfect, they just reflect the ‘group think’ of millions of investors. The reality is that interest rates are rising in the States, and that is going to take money out of the stock markets, all over the globe, and push it into the ‘money’ market. What we need to hope for now is a ‘soft landing’ in the stock exchanges, not a rapid reversal that will psychologically affect everyone. We could well look back at 2016 in future years and realise that it was a watershed year and signalled the start of the 4th industrial revolution in earnest. Locally our stock market continues to drift lower. Although that’s better than massive shocks that tank it 5% at a time, the net effect is the same. We need commodities to turn around properly before we will see a sustained reversal – somewhere along the way we need to reverse this dependence on resources (but in fairness even Oz battles with this dependence). Long term your growth is going to come from stocks, but shorter term investments should be ‘hedged’ from volatility with exposure to cash and bonds.

Global economy: The reality is that we are living in a new normal post-2008, and nobody has the silver bullet to fix the global economies. All those old tricks just don’t work anymore. Monetary policy (like quantitative easing) that has ruled in the last 8 years has done almost nothing. Money just isn’t circulating, companies aren’t adding jobs and consumers aren’t spending (see my blog below to how that works). Although the US unemployment might be at its lowest level ever, the ‘quality’ of those jobs (and how much they pay) is at an all-time low. It’s more about flipping burgers than skilled artisan jobs. Those manufacturing jobs are not coming back, as much as Trump may promise that they are. Americans are just not prepared to pay way more for goods just so that the manufacturing industry stays American. There’s a limit to patriotism, especially if it effect’s the pocket. There is a dearth of skilled workers in the States and they can only be filled with immigrants (from India or China), which is going to burn Trump. It’s ironic that he has applied for immigrant labour for his vineyard because Americans don’t want the jobs. Protectionism and anti-immigration are all very well until the average Jo has to pay considerably more for his ‘necessities’.

Exchange rates: The Rand exchange rate is looking very different from this time last year and has settled down to the ‘around’ R14 level for the moment. The Rand ended the year as follows: Rand/Dollar R13.74, Rand/GBP R16.95, Rand/Euro R14.46. If you’re topping up your forex pocket, GBP is probably a good bet, their weakness won’t last forever.

Other Indices: Brent crude remains above $50 at $56.82 but not yet climbing as high as OPEC would like, there is obviously scepticism as to whether production cuts are going to work. Saudi Arabia is doing most of the heavy lifting when it comes to cuts but how far they will go remains to be seen. There is very little love lost between Saudi and some of their neighbours. In many ways, the halving in the price of oil which resulted from a price war in an attempt put (American) Frackers out of business has backfired and it may take many years for the price to even get above $80 again.

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Blast from the past:

Week 52 2015 Week 52 2016
ALSI ended on 51324 ALSI ended on
Global interest rates extremely low Global interest rate sentiment only started to reverse in Dec ‘16
Nenegate fallout hurting badly Plenty of political own goals in the year, but we have mostly bounced back
MTN Nigeria fine the talk of the town Trump hype still rules the markets 2 months later
Brent crude $37.28 Brent crude $56.62 Petrol price will rise in Jan
Rand/Dollar R15.63 Rand/Dollar R13.74 Our good work, dollar is still ‘strong’
Rand GDP R22.99 Rand GDP  R16.95 Thanks to Brexit

 

Free stuff (in case you missed last week’s): Just when you thought Santa had forgotten you, here is some stuff to kick off your New Year:  If you’d like a (free) gift voucher for the Shaw Academy (online webinars, usually a 6 week course) just ask (all sorts of things you can learn from web design and coding, social media marketing, photoshop and health and fitness related areas.) All of these could lead to a new source of income.  If you’d like a free Audible book (the voice book arm of Amazon) you can choose one of these titles and let me have your Whatsapp cell number or email address to send you the link: (Black Swan, Born a Crime, Keyperson of Influence, An Economic History of the world since 1400, Misbehaving or Rebel Entrepreneur). This only works if you’ve not received a book from Audible before as a gift – then kick off your shoes and spend some guilt-free hours resting your eyes).

Should you be investing offshore? The Rand is an extremely volatile currency, which is why it is the darling of ‘day-traders’, if you invest offshore you need to understand what the effect on your investment will be in the case of a Rand appreciation and market downturn. In my opinion, the greatest value out of offshore exposure comes from the hedging effect in a ‘Rand cost averaging’ scenario. This sounds very complicated but it isn’t. If you invest monthly in a portfolio that has some offshore exposure, some local exposure they will protect each other by moving in opposite directions. You’re not going to get this effect if you whack a lump sum offshore all at once. Say you have R10k a month to invest. If you invest 1/3 offshore (or in a Dollar denominated fund) and the 2/3 locally, then if the Rand depreciates your offshore portfolio will fare better, and visa versa. This results in a more ‘stable’ return. This should be a long-term strategy, think 10 years, not 2. At the end of that time, it is inevitable that you’d have been better off than had you gone with all local or all offshore but none of us has a crystal ball. This slow drip of investment over a long period will give you the ‘Rand cost average’. This principal also works for your local monthly investment, if the market tanks, the stock or unit trust is cheaper, so you get more units for the same amount of money. A lump sum has no choice but to ride the ups and downs.

A blog you may have missed in BizNews: The Money-Go-Round 

Actions: Recharge your batteries and find something creative to do, it is the only thing that will get you out of a rut. To significantly improve your income you’re going to have to be better at what you do, move or find a second source of income. Get into the habit of watching your spending on a daily basis and slip every last cent into savings, then into investment. Put all your refunds from med aid, for example, straight into savings – a great new habit.

Dawn Ridler, CFP®, BSc Hons, MBA,
Founder, Kerenga – Wealth Ecology
Oracle Broker Services, Licensed FSP 28418
Cell      :  079 372 5171; Fax :   (+27) 86 235 6777; Skype : dawn.ridler
Twitter : https://twitter.com/dawnridler;
Blogs on LinkedIn : https://www.linkedin.com/today/author/dawnridler
LinkedIn Profile and CV: http://za.linkedin.com/in/dawnridler/
Personal website and Blogs: www.kerenga.com
Podcasts : http://dawnridler.podbean.com/#.WAW_cW3MRzc.email

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