Market volatility still rules giving pockets of opportunity, time for active asset management?

Local Economy: Locally, our stock market seems to be taking the lead from the American stock exchanges riding each up and down in the market quite predictably. In all fairness, we aren’t the only ones, with most emerging markets and even Europe following suit. Ten years on from the credit crises, both here and abroad, regulations brought in to prevent a repeat of the subprime crises are being sidelined. Here at home, following a lawsuit, credit providers no longer need proof of income to extend credit. Good old ‘ninja’ credit lending (no income, no job). This is also resurfacing again Stateside.  All over the world, consumers are extremely over-indebted, only saved in the West by nearly zero interest rates – now on the rise. What you may not know is that credit card debt interest rates in the US are almost on par with ours.One of the downsides of a volatile market is that your ETFs and stocks are likely to be making you seasick. One of the biggest risks in our SA market is the dominance of the darling of the JSE, Naspers, thanks to a savvy investment in the Chinese company Tencent. The Chinese ‘Faangs’ including Alibaba and Tencent have a collective market cap of over $1 trillion. The holdings in these ‘Chinese’ internet companies is complex, using the Cayman islands in their structure and with China still ‘feeling its way’ in the world of capitalism, there is a substantial risk to the share price because new regulations don’t have to go through a lengthy process as they do in a democratic law-making system. Ordinarily this risk, this can be mitigated in a diversified portfolio, but the sheer magnitude of the Tencent share of our market capitalization should give you pause. Check how ‘diversified’ your wealth portfolio is, especially if you hold popular unit trusts or ETFs. Politics and economics are inextricably linked, and it was a quiet week politically – with Winnie now buried, expect this aspect to tick up again, and that is rarely good for our economy.

Offshore: There’s nothing like a little war to mix up markets – in this case not just getting involved in Syria but the trade war/skirmish/rumble. The global bull run is well into its tenth year, and most investors feel that it is late in the business cycle. It has been given a late boost with the Trump tax breaks. On the other hand, there are signs that the global markets are recovering – so which is it/ will markets run another decade or are we going to see another decade of small corrections but ever on up? The central banks globally seem to have diverted the focus from containing inflation to ensuring there is never a recession by intervention like the quantitative easing programs.

Exchange rate: The Rand edged on up over the R12 to the Dollar level last week, ending Friday on R12.07. The Rand/Euro closed on R14.91 and the Rand/GBP on R17.23. The Rand depreciated last week – despite the lack of bad political news.

Indices: The oil price has spiked up on the increased tensions in Syria. Prices have been inching up so gradually we might not have realised that Friday’s price was a 3 ½ yr high. If the dollar wasn’t so weak we might have noticed the effect on your monthly fuel bills. Frackers will take advantage of this price increase and should moderate more increases. Saudi Arabia might have tried to put Frackers out of business by driving down the price, but the recent gradual increase shows that inviting them to the higher price party and appealing to their greed means they all win (except the consumer).

Action: Even though interest rates are dropping, you can lock in the higher rates using corporate bonds in your portfolio (with a 2-year investment horizon). You can get this exposure from certain balanced Unit Trusts or bespoke portfolios.

Dawn Ridler, CFP®, BSc Hons, MBA,

Founder, Kerenga – Wealth Ecology

By |2018-05-02T15:37:00+00:00April 16th, 2018|Sake|