Dear Investor,

Our View of the Month picture features a collage of reforms that occurred in South Africa during the month of June 2021:

.• Majority stake in South African Airways (SAA) is to be sold to a local jet-leasing company and private equity firm, ridding the government and its taxpayers of a liability that has long been a drain on the country’s finances. A consortium comprised of Johannesburg-based Global Airways, which owns recently launched domestic airline Lift, and private equity firm Harith General Partners will take a 51% shareholding in SAA, with the government retaining a minority stake. The grouping named Takatso will invest as much as R3.5-billion over the next three years. Questions has been raised with regards to Harith General Partners’s strong links to the ANC.

• The recent sudden reoccurrence of load shedding was a stark reminder that Eskom is South Africa’s biggest and most immediate threat to growth. As a result, it was a great relief when government announced that it will allow private investors to build their own power plants with up to 100 megawatts of generating capacity without requiring a license. The projects will still require permits to connect to the grid, which will be much quicker to obtain than licenses. Companies producing excess power will be able to sell it through the transmission network, subject to agreements with Eskom and municipal authorities.

• South Africa recorded another massive trade surplus (the amount by which the value of a country’s exports exceeds the cost of its imports) in May 2021 of R54.6bn. This is the 3rd month in a row that the surplus has been above R50bn. Year to date exports are up 53.7% year on year while imports are only up 13.8%. The surplus is largely attributed to a continuation of a good export performance, on the back of high commodity prices, coupled with a recovery in the global economic. This has resulted in reduced government borrowing and the need to issue South African bonds.

• South Africa recorded another massive trade surplus (the amount by which the value of a country’s exports exceeds the cost of its imports) in May 2021 of R54.6bn. This is the 3rd month in a row that the surplus has been above R50bn. Year to date exports are up 53.7% year on year while imports are only up 13.8%. The surplus is largely attributed to a continuation of a good export performance, on the back of high commodity prices, coupled with a recovery in the global economic. This has resulted in reduced government borrowing and the need to issue South African bonds.

• Finally, the Constitutional Court sentenced Jacob Zuma to 15 months imprisonment. The ruling came after Zuma defied the Constitutional Court’s orders to appear before the State Capture Inquiry and answer non-incriminating questions about his nine years in office. It must however be remembered that Zuma was not sentenced for all the corruption cases against him, but rather he was sentenced for contempt of court. With less corruption, the increased tax receipts have a chance of being allocated to the areas that will make our economy grow. In turn, reducing our need for debt and the servicing thereof.

We are excited about the above reforms, and feels it is great to be a South African again. This despite the current Level 4 lockdown restrictions which is hampering our economy. Our hearts go out to the many affected by the 3rd wave both from a health and wealth point of view.

In this month’s newsletter we cover the following topics:

1. Emerging Markets investment opportunity
2. Rand Note
3. Oil Tanks
4. Fuel Prices
5. Market stats summary
6. Financial indicators as at 30 June 2021
7. Protection of Personal Information Act
8. Disclaimer

1. Emerging Markets Investment opportunity

UK-based Centre for Economics and Business Research (CEBR) recently forecast that China will overtake the US as the largest economy by 2028, five years earlier than forecasted prior to the pandemic. In the same research, India is tipped to become the third largest economy by 2030.

At Vista Wealth we’re excited about these forecasts and eager to get Emerging Markets (EMs) exposure for our clients. We are however acutely aware that EMs are volatile with no guarantees that the forecasts will realised

Introducing the Investec MSCI Emerging Markets Digital Plus, a partial capital protected investment linked to the performance of the MSCI Emerging Markets Index in USD. Below some of the highlights about this opportunity:

• 4-year term – Usually these type of investment opportunities are 5 years or longer
• 22% minimum return in USD if the index is flat or positive – Take advantage of the current strong Rand with full participation on the upside if the index returns greater than 22% at expiry. See back testing below
• Available locally in ZAR – When hosted in your local JSE share portfolio, you save on platform and currency conversion fees, while getting the benefit of a depreciating Rand and vice versa
• Available offshore in USD – When hosted in your Glacier International Global Life Plan, you save on custodian fees, while getting the reduced tax and estate planning benefit
• Fees priced in – No need to negotiate Investec or Advisor fees as it is priced into the product
• Not 100% protected – if index fell more than 30% at expiry, investor shares in the loss. See back testing below

Back testing:
The graph below indicates historical 4 year rolling returns over the past 30 plus years for the MSCI Emerging Markets index. How to intrepret the graph:

• 52.8% the index returned greater than 20% – In these cases, investors will get the 22% minimum return in USD
• 14.7% the index returned between 0% and 20% – In these cases, investors will get the 22% minimum return in USD
• 27.8% the index had a negative return below 0% and -30% – In these cases, the investors will get their capital back
• 4.8% the index had a negative return more than -30% – In these cases, the investors will share in the loss

* Past performance is no guarantee of future performance.

More information:
• Click here for a short video explaining the product
• Click here for the full product brochure
• Click here to read the CEBR research article

Closing dates:
• JSE local listing – 9 July 2021
• Offshore listing – 7 July 2021

2. Rand note

The Rand has held above R14.30 to the US dollar, failing to strengthen further on ongoing market concerns over firming of US interest rate hike plans and the rapid increase in the third COVID wave in SA amid the effects of a poor vaccine rollout.

The Brazilian Real is now the strongest EM currency since the beginning of the year, up 6.8%, and gaining in particular from rate hikes returning its central bank rate back to just 25bp shy of its pre pandemic level. SA’s repo at 3.50% is 300bp removed from its pre pandemic 6.50%. Other countries also increased rates supporting their local currencies, these include Russia, Mexico, Hungary and the Czech Republic.

The South African Reserve Bank (SARB) governor has indicated that the economy is seeing a stronger than expected recovery, and that higher inflation could see higher interest rates. The recent third wave in COVID infections, and resultant tighter lockdown measures is however a risk to slowing growth.

Below Investec’s latest expected exchange rate forecasts:

3.  Oil tanks

International oil prices have seen a sharp run up recently as rising demand has squeezed supplies, with inventories being run down, particularly in the US as the vaccinated get back to driving and traveling.

OPEC+ has instituted severe quotas on oil supply, which has in particular aided soaring oil prices. The cartel meets again at the start of July’21 to discuss its restrictions on supply but some additional supply could come online from Iran as talks on nuclear with the US improve. Financial market expectations on higher oil prices are growing, with market players now fearing a previously unexpected approach towards US$100/bl for Brent crude by 2022, if not before, in a temporary spike unless OPEC+ begins significantly lowering quotas.

As published in our previous newsletters, we have been trading oil in both our local and foreign share portfolios. See below returns over the last 4 months of the two Exchange Traded Products (ETPs) used to get exposure to oil:

#	Portfolio	Instrument	Currency	Performance for Mar’21	Performance for Apr’21	Performance for May’21	Performance for June’21
1	JSE  portfolio	SBAOIL	ZAR	-3.81%	3.33%	1.81%	13.76%
2	Offshore portfolio	USO	USD	-1.89%	6.91%	4.82%	9.82%

 

4. Fuel prices

Following on from the above Oil tanks section and the increase in oil prices, all grades of fuel will increase on Wednesday 7 July’21. Increases of between 17 and 29 cents per litre for petrol, and around 36 cents per litre for diesel:

• Petrol 95: increase of 17 cents per litre
• Petrol 95: increase of 29 cents per litre
• Diesel 0.05%: increase of 37 cents per litre
• Diesel 0.005%: increase of 36 cents per litre
• Illuminating Paraffin: increase of 31 cents per litre

5.  Market stats summary

The red block shows the market stats for the month of June 2021. In short, the JSE All Share Total Return index was down ↓-2.4% for the month (still up ↑25.1% for the last 12 months). The Listed Property sector was the best performing sector for the month, up ↑3.4%. The Industrial sector was marginally up ↑0.2% for the month. The Financial sector was down ↓-3.4% while the Resources sector was the worst performing sector down a massive ↓-6.4% for the month.

6. Financial indicators as at 30 June 2021

Global indices (NB! Returns are measured in Rand percentage points. For example, the S&P 500 was up 5.99% for the month as measured in Rands) 

JSE Sectors:

Currencies (NB! Positive indicates ZAR has weakened for the period, vice versa)

Interest Rates:

7. Protection of Personal Information Act

At Vista Wealth Management, we respect and value our clients’ personal information and we are committed to keeping all client information secure and confidential. In line with Protection of Personal Information Act 4 of 2013 (POPIA) which came into effect on 1 July’21, we would like to ensure that we can continue sending you e-mail communication from time to time.

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8. Disclaimer

The information contained in this e-mail is of a general nature and is not a substitute for professional advice. We recommended that you obtain specific professional advice before you take any action. Vista Wealth Management takes all reasonable steps to ensure that the content of this e-mail is accurate and up to date, however, errors and omissions may occur. The accuracy of the information contained should therefore not be relied upon as a statement of fact.