Emerging markets all being hammered and Rand still falling

Local Economy: All emerging markets took a hammering last week (with a brief respite on Friday)  and we were no exception. Commodity prices which are quoted in dollars all came off sharply and gained speed on Friday, when cotton, for example, lost 8% in one day. The general feeling is that this is the US trade war starting to play out globally. Locally the big news of the week was the NHI, National Health Insurance. This was first mooted over 10 years ago, and the government even ran a couple of test sites but it never goes anywhere because it is just way too expensive and there are not enough trained personnel to run it at any level. Frankly, this just looks like another vote buying exercise. Like appropriation of land without compensation, this is a popular topic but is just as likely to be pushed onto the back burner again following next year’s election. Even Motsoaledi is unable to say how much it will cost. The World Bank Diplomatically put it “…we don’t understand why South Africa wants to do something nobody else has achieved’. Instead of seeing this as a euphemism for “Are you nuts!”, they see it as a compliment. Sigh.  There is no doubt that it will be an additional cost north of R300 billion (we already spend R200bn of tax on health). To put this in perspective, 100% of the income tax from individuals was R505bn last year( so the mooted 4% tax to pay for NHI is going to go nowhere). The government has also proposed some small changes to medical aids, but one low hanging fruit is the medical aid tax credit – I expect this to bite the dust perhaps as soon as the mid-term budget in October.

Offshore: There is no doubt that China is ‘weaponising’ the Yuan in response to Trump’s trade wars. Trump has always accused China of doing this, so I guess they feel that they might as well do what they’ve been accused of for so long. Basically, they are devaluing the RMB to offset the trade tariffs. Innovation and technology is at the centre of this spat. The US is intent on ‘normalising’ the monetary policy – read realistic interest rates. The historically low rates has fueled a massive credit surge in the States, but as inflation and interest rates rise, these consumers are going to be hard hit (just like the run up to 2008). The biggest issue with having these ultra-low interest rates is that if and when a recession hits, the FED has no wriggle room to boost the economy by dropping rates. Obviously, this also has a long term effect on pensions, but that is the elephant in the room nobody wants to talk about. We could be looking at the end of the Merkle era in Europe – thanks mostly to Migration. Her ‘Angel Angela’ gesture of opening the gates to migrants a couple of years back is now coming back to bite.

Exchange rate: The Rand sailed precariously close to R14/$ midweek but pulled back a tad on Friday. The Rand/Dollar closed Friday on R13.47, Rand/GBP on R17.84 and Rand/Euro on R15.66

Indices: The price of oil has come off nicely in the last week, now trading at $74.09. This is mostly thanks to increased global supply. The price of Brent crude on Friday was down to $74.09. Unfortunately, because the Rand continues to depreciate this may still resultin yett another increase at the pumps next month.

Action: Every dip in the market brings the opportunity for asset managers to buy quality stocks for the long term. Don’t have a knee-jerk reaction to your long-term investments if they have been properly planned and have to right asset allocation.

Dawn Ridler, CFP®, BSc Hons, MBA,
Founder, Kerenga – Wealth Ecology


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