VIEW OF THE MONTH NEWSLETTER
OCTOBER 2020Dear Investor,
Our “View of the month” is the sad, empty streets of Piccadilly Circus in London. The UK and almost the entire European bloc are in a hard lockdown again as a second wave of COVID-19 infections hits the continent. This is seriously hindering the recovery of an already fragile world economy with economists across the board revising their GDP estimates down.
The resurgence in Europe tells us what can happen if we let our guard down. We should recommit to social distancing, washing our hands regularly and wearing masks. Understandably we’re all “gatvol” but South Africa can’t afford another hard lockdown.
In this month’s newsletter we cover the following topics:
- Keep calm and stay invested
- SA Economic Reconstruction and Recovery Plan
- Medium-Term Budget Policy Statement
- US elections and the impact on emerging markets
- Capital protected diversified offshore investment opportunity
- Rand forecasts
- Oil tanks feedback
- Fuel prices
- Support Local – New feature!
- Market stats summary
- Financial indicators
1. Keep calm and stay invested
In 1939 the British government created “Keep calm and carry on” motivational posters in preparation for World War 2. The poster was intended to raise the morale of the British public. With many markets now firmly in the red for the year (SA down almost 5%), we request our investors to keep calm and remain invested. No one can control the markets, but investors can shape their own reactions and decide what to do with their investments:
This is what investors SHOULD NOT DO:
– Make impulsive immediate decisions – Investing is a long-term strategy and selling now could make temporary losses permanent. Time in the market, not timing the market
– Check portfolio values daily – This is just likely to cause more panic and the loss in value will appear bigger. Seeing negative returns will enhance the urge to act impulsively
– Catch falling knifes – Do not attempt to buy a stock near its low point, rather wait for the price to bottom out before buying
This is what investors SHOULD DO:
– Continue regular investments – No one knows how long the pandemic will last or if there will be a third or fourth wave. Regular investing will enable investors to take advantage of lower prices
– Focus on quality – Invest in companies with strong management, long-term consistency in growth and robust financials. Rather than buying what looks cheap, investors should buy good quality at a low price
– Diversify – Invest in globally diversified portfolios which will level out the impact of systemic and unsystematic risks. See the capital protected diversified offshore investment opportunity section later in this newsletter
2. SA Economic Reconstruction and Recovery Plan
On 15 October 2020, President Cyril Ramaphosa announced the South African Economic Reconstruction and Recovery Plan (ERRP). The plan is based on four priority interventions, which can be summarised as follows:
- A planned massive rollout of infrastructure across South Africa
- Rapidly expanding energy generation capacity
- Drive for industrial growth
- Employment stimulus
The four interventions above aim to:
- achieve sufficient, secure and reliable energy supply within two years
- create and support over 800,000 work opportunities in the immediate term to respond to job losses
- unlock more than R1 trillion in infrastructure investment over the next 4 years
- reduce data costs for every South African and expand broadband access to low-income households
- reverse the decline of the local manufacturing sector and promote reindustrialisation through deeper levels of localisation and export
- resuscitate vulnerable sectors such as tourism, which have been hard hit by the pandemic
Concerns have centred around yet more plans without delivery in the past, but the President is showing strong commitment to implementation. This ERRP has a better chance of success due to the following:
- a number of projects are already on the go and some, partially achieved
- reduction in red tape and improving civil servants productivity is being addressed
- the release of high frequency Spectrum is set for March 2021, while the private sector can participate in rail and core rail network
3. Medium-Term Budget Policy Statement
The 2020 medium-term budget policy statement delivered by Finance Minister Tito Mboweni on 28 October 2020 can be summarised in one word – DEBT! It remains the fastest growing expenditure item with Government now borrowing at a rate of R2.1 billion per day. It is estimated that our debt to GDP ratio will increase to 95% by 2025. Given that government has consistently miscalculated debt estimates, this is massively concerning and a confirmation that we’re a debt trap.
The speech also contained some promises, contradictions, and a blatant lie:
- Promise: The public sector wage bill, which is now 40% of total government expenditure, will be reduced by keeping increases to 0.8% over the next three years – This promise has been made before but due to the ANC’s alliance with COSATU, the political will to implement is clearly lacking
- Promise: No further recapitalisation of state-owned enterprises – During the same speech R10.5 billion was allocated to SAA. Yes. It could be argued it is to implement the business rescue plan but the minister stated previously the “taps” for SOEs are closed?
- Promise: Tax increases over the next 3 years with R5bn targeted for the 2021/2022 financial year – In February 2020, the Minister indicated that the country cannot tax its way out of the crisis, now he promised increase tax collections?
- Lie: The minister claimed that the Tygerberg Hospital in the Western Province, was racially segregated – This was probably done to distract from the debt crisis we find ourselves and the SAA bailout. The DA has requested an apology and will be reporting the minister to parliaments ethics committee
All-in-all it was not good news and economists are expecting downgrades from Moody’s on 20th November. Fitch and S&P are also likely to follow.
4. US elections and the impact on emerging markets
Voters in America will decide on 3 November whether President Donald Trump remains in the White House for another four years or Democratic Party nominee Joe Biden will take over. Biden is currently leading the national presidential polls but that is just a guide and by no means a forgone conclusion. In 2016, Hillary Clinton led in the polls and won nearly three million more votes than Donald Trump, but she still lost – that’s because the US uses an electoral college system, so winning the most votes doesn’t always win you the election.
Lukman Otunuga (senior research analyst at FXTM) had the following to say with regards to the impact of a Biden win on emerging markets: “A Biden win may raise hopes of decreased protectionism and improving trade relations with China. Such a positive development could bolster global risk sentiment, consequently boosting appetite for emerging-market assets.”
5. Capital protected diversified offshore investment opportunity
Nobel Prize winner Harry Markowitz coined the phrase “the only free lunch in finance is diversification”. Amidst Covid-19, US elections, Brexit and the SA debt crisis – there is no better time to apply this principle.
Introducing the Investec Advanced Investment Holdings capital protected investment opportunity – A well-diversified investment opportunity in quality international indices/ETF with the following weightings:
The investment also has the following salient features:
Even though the closing date for this investment opportunity is only 4 December 2020, investors are reminded that this is a USD investment and we would therefore still need to convert your ZAR to USD and complete all admin before this date.
Below Investec’s expected case exchange rate forecasts for the Rand as published on 19 October 2020:
Oil prices are weaker than they were in late September but are still far off from the distressed levels seen in April, when the price fell below $20 a barrel. This is as a direct result of the second wave of Covid-19 infections causing countries to implement strict lockdown measures and therefore depressing the demand for oil. As published in our previous newsletter, we’ve been trading oil in both our local and foreign share portfolios. Below returns over the last 3 months of the two Exchange Traded Products (ETPs) used to get exposure to oil:
| # | Portfolio | Instrument | Currency | Performance for Aug’20 | Performance for Sep’20 | Performance for Oct’20 |
| 1 | JSE portfolio | SBAOIL | ZAR | 5.53% | -9.36% | -11.98% |
| 2 | Offshore portfolio | USO | USD | 5.19% | -7.49% | -10.70% |
According to the Automobile Association, fuel prices will drop on Wednesday, 4 November:
- Diesel all grades: ↓ 11 cents per litre
- Petrol unleaded 93: ↓ 24 cents per litre
- Petrol unleaded 95: ↓ 27 cents per litre
The Rand has maintained its strength against the US dollar for October’20. This has positively impacted South African fuel prices and eased international petroleum prices.
In this feature of our newsletter where we’re doing our part in promoting local businesses affected by the devastating impact of Covid’19. We’re specifically focussing on businesses hardest hit or still affected by the lock-down regulations. Most business we’ll be featuring is also clients of Vista Wealth.
Bella Manga in situated in the hart of the Garden Route, close to Plettenberg Bay. Sprawling lawns, large pools, B&B and Self-Catering accommodation, makes it ideal for couples and families. Take a walk around the farm, relax next to the pool, feed the donkeys, and enjoy a hearty farm style breakfast. Close enough to enjoy the white sandy beaches of Plett and Keurbooms and far enough to escape the crowds in peak season. Book now and get a 15% direct booking discount by referring to this newsletter. Contact details:
Jenny 083 632 3018
The red block shows the market stats for the month of October 2020. In line with international markets, the JSE All Share Total Return index had a bad month and was negative ↓-4.7% for the month (↓-4.8% for the last 12 months). Thanks to a good run from Naspers, the Industrial sector was the only sector positive for the month, up ↑0.4%. The Resource and Listed Property sector were both convincingly down ↓-10.08% and ↓-8.5% respectively. The Financial sector was short on their heels, also down ↓-5.9%.
11. Financial indicators as at 31 October 2020
Global indices: (NB! Returns are measured in Rand percentage points. For example, the S&P 500 returned -5.48% for the month as measured in Rands)
JSE Sectors:
Currencies: (NB! Positive indicates ZAR has weakened for the period, vice versa)
Interest Rates:
