INVESTOR NEWSLETTER
As I type this newsletter, the ZAR is trading at R15.87 to I
USD. The South African Economy was hit
with the “bomb” in December when the Zuma Cabinet decided to axe Mr Nhlanhla
Nene as Minister of Finance and appoint David van Rooyen. The international
investor community reacted by dumping our currency. The Zuma government was forced to save the
“ship” from sinking and appointed Pravin Gordhan which saw our currency
stabilize.
This month Moody’s
confirmed South Africa’s credit rating at Baa 2 and adjusted the outlook from
stable to negative. This is two points above “junk” status. Next month we wait
for Standard & Poor’s Credit Rating. In line with what is happening
politically, I think we should brace ourselves for this announcement.
In a nutshell how
does this affect your investments?
Last year I lowered my client’s exposure to the JSE. In retirement funds the portfolios are
invested to the maximum offshore at 25%. This is because retirement funds are
governed by Reg 28 which dictates how retirement savings can be invested. 100%
of my clients are in positive territory due to the 5 year view I take before
selecting funds.
It has been extremely difficult to make investment decisions
going forward. Property funds are under pressure due to raising interest rates
and the JSE is in the red. To invest
offshore at this point is expensive due to the exchange rate.
There is a catch 22 situation, if the Rand continues the downward spiral,
going offshore makes perfect sense, however to try and time taking funds offshore
is difficult, as the Rand could strengthen. We saw this happen a few weeks ago
and there were some press statements out stating the ZAR was one of the best
performing currencies of 2016. The truth however is that the Rand was oversold
in December and recovered when Gordhan was reappointed.
Chris Heart an ex economist of Standard Bank predicts that
the Rand could hit R60 to the USD by 2019. This is a frightening prediction! However,
there are many economists that contradict his view. The middle ground where the
majority of economists agree is around R19. It is a fact that the South African
economy is in for higher inflation, higher interest rates and higher
unemployment. This is going to take a toll on all South Africans.
With all the noise in the local economy, we must not forget
the state of the global economy especially the US and the continued
expectations of the FED increasing interest rates. As the FED moves interest
rates up the dollar will become stronger and put pressure on US equities and
emerging currencies.
My view at the moment is to stay underweight in local
equities, overweight in cash and offshore, property hold.
Investors who can withstand volatility and have a long term
horizon, investing offshore is a “no-brainer”. For investors that are risk averse
cash may be a good option until the “storm” subsides. I’m closely monitoring
your portfolios at this time and will be contacting you with rebalancing in the
course of the next few weeks if necessary.
Save in US Dollars:
There is a new Discovery Offshore endowment plan which
allows South African’s to invest monthly directly offshore in an extremely cost
efficient and simple way. The Discovery Offshore Endowment is the first monthly
contribution in US dollars in South Africa. The minimum premium is US$200 per
month and the investment term is 5 years. This is a great investment platform
that allows South Africans for the first time to save in US dollars.
Investors Drawing
Income:
The cost of living has skyrocketed and investment yields are
under pressure a “double jeopardy”.
Investors drawing income should be cautious at this point. Needless to
say, the less income you draw down the more the capital can grow to give you
future income.
There is some good news for investors in Linked Annuity
investments. Discovery has launched a Linked Annuity that boosts the amount you
are drawing out by up to 50% with Vitality and for investors without Vitality
by up to 20%. The boosts are dependent on the percentage of drawdown selected.
For example (without Vitality)
R1,000,000 invested in Linked Annuity:
Investor selects 2,5% drawdown p/a is R25,000
2,5% to 3,25% band: boost is 20% is R5,000
The total the investor will be paid is R30,000
For example (with Vitality)
R1,000,0000 invested in Linked Annuity
Vitality Status: Silver
Investor selects 2,5% drawdown p/a is R25,000
2,5% to 3,5% band: boost is 40% (Silver Vitality Status) is
R10,000
The total the investor will be paid is R35,000
The boost on income will help cover inflation increases and
of course preserve the capital. Discovery
and External Funds are available on this platform and fees are very
competitive. You can transfer your current Linked Annuity to Discovery
at no cost and I will assist you with the transfer.
For further info: Discovery
Linked Annuity Plan
Sincerely,
Stephen Leppan
H,Dip Wealth Management (Stel)
stephenlep@discovery.co.za
