Dear Investor,

With this being our first newsletter of 2022, we would like to wish you all the best for the year!

And what a start to the year January has been! Before we get into the markets (which has been in turmoil), we must celebrate the sport successes achieved by South Africa during the first month of 2022:
Proteas won both the cricket test (5 day) and ODI (1 day) series against India who is rated the number 1 cricket team in the world
Blitzboks won six consecutive World Rugby Sevens Series tournaments and 34 matches in a row

Not only did our sports teams make us proud, but the South African equity markets also held up despite most international markets selling off during the month of January’22. As per the table below, the FTSE/JSE Top 40 Total Return Index was the only major index positive for the month:

*Above returns are measured in Rand percentage points

While worldwide Covid infections are at record highs, infection rates are not the only thing that is causing uncertainty in markets:
• Covid related discruptions has caused supply chain bottlenecks, as well as energy and shortages
• US Inflation is at all-time highs causing the Fed to hike interest rates
• US Fed tapering to reduce balance sheet debt
• Russia continuing to build up forces on the border of Ukraine

These conditions beg the question if it is a good time to buy? Perhaps the old quote by Warren Buffet rings true? “Be fearful when others are greedy, and greedy when others are fearful.”


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

1.    Is it time to buy?
2.    What should I buy?
3.    Which investment vehicles should I consider?
4.    Vista Wealth and OUTvest announcement
5.    OUTvest capital protected investment opportunity
6.    Refresh your financial confidence
7.    Rand forecasts
8.    Fuel Prices
9.    Chart of the month
10.  Interesting stats for the month
11.  Market Stats
12.  Financial indicators as at 31 January 2022
13.  Support local – Bella Manga
14.  Disclaimer


1. Is it time to buy? 

Surely uncertainty in markets and a contrarian quote by a successful investor are not the only indicators of whether if it is a good time to buy or not?

Value investing is a popular method to determining whether it is a good time to buy or not. Price Earnings (P/E) is arguably the most common and popular financial ratio in value investing. It calculates the current share price of a company relative to its earnings per share (EPS). The P/E ratio indicates how investors assess a company’s performance, specifying how much they are prepared to pay for one rand (R1) of a company’s earnings or profit. The lower the P/E the better the value and vice versa.

By applying the P/E ratio valuation method to the S&P500, we find that it is still over-valued relative to their long-term history.

*Credit to Will Ridge from Investec CIB as at 25 January 2022

Similarly, if we apply the P/E ratio valuation method to the Nasdaq100, we find that it is also over-valued relative to their long-term history. The Nasdaq100 is currently trading at 27.29 P/E compared to the average P/E over the last 10 years of 21.45. If you include the lunacy of the bubble, the long-term average P/E shoots up to 22.37 which is still lower than the current P/E of 27.29.

*Credit to Will Ridge from Investec CIB as at 25 January 2022

From the above, when it comes to investing, it is time in the market that matters and not timing the market.


2. What should I buy?

With the new year in full swing, we attended quite a few webinars hosted by different asset managers. In order to demonstrate that there is no free lunch, we were especially intrigued with the different views from the Coronation and Ninety One teams.

Coronation felt very strongly that it is not too late to buy South African equities. They indicated that the local equity market still offers meaningful upside to fair value, and in their view, local government bonds remain attractive.

They were not as optimistic about global equity returns, given high valuations and elevated levels of exuberance, especially in the US. Their expected return ranges from the major asset classes are summarised below:

Source: Coronation as 31 December 2021


Ninety One was also optimistic about our local SA equity market, but their preferred asset class was Global equities. Below is Ninety One’s 5 year expected returns per asset class:

Source: Ninety One as at January 2022

From the above it is clear that there are many views out there and when it comes to investing, diversification remains the only free lunch.


3.  Which investment vehicles should l consider?

In the first two sections of this newsletter, we covered if it is a good time to buy and if so, what to buy. In this third section we’ll be covering the different vehicles available for investing.

February is the last month of the financial year and therefore your last opportunity to take advantage of some of the best tax efficient products/services on offer. As a result, we’ll be highlighting tax efficient vehicles for your consideration:
Retirement Annuities (RA) – Contributions up to 27.5% of gross remuneration are tax deductible (limited to R350k pa)
Umbrella Pension or Provident funds – Same as RAs above but for small-to-medium enterprises
Tax Free Saving Accounts – No tax on investment returns such as interest, dividends, or capital gains. Contributions limited to R36k per annum
Endowments – Reduced capital gains effective tax rate of 12% as opposed to 18%
Share portfolio tax efficiency – Tax loss harvesting and utilising your annual tax- free capital gains allowance of R40k
Section 12Js – If the taxpayer is an individual with a marginal tax rate of 45%, the taxpayer can invest R1m and will effectively be paying R550k (R1m – R450k) for a R1m investment since R450k of your investment will be refunded by SARS

As a reminder, tax is your biggest expense, so be tax efficient! Click here to read more about the above tax efficient vehicles or contact us should you require assistance.


4. Vista Wealth and OUTvest announcement

We’re excited to announce that Vista Wealth has joined an elite group of independent financial advisors working and promoting the OUTvest online platform. OUTvest combines state-of-the-art investment technology and radically low fees to make investing trackable, simple, and more affordable for clients. Below are some of the reasons we’ve decided to partner with OUTvest:
Ability to track real-world outcomes in real-time – whether you’re investing for your child’s education, a home, retirement, a wedding, or even a bucket list trip, you will always be able to keep track of your progress
• Fees are transparent and designed to be as low as possible – the ONEfee model leads to you only paying one, fixed fee on each of your investments. The only exclusion is your ongoing financial advisor fee
• Innovative online platform – digital convenience from phone or laptop for FICA, investing, withdrawing, switching, viewing statements, tracking goal progress, and changing personal details
• Highly rated investment choices – Their funds created in conjunction with CoreShares and S&P Dow Jones, all achieved a four-star rating from Morningstar recently


5.  Capital protected investment opportunity

Leading on from our OUTvest announcement above, our capital protected investment opportunity this month is also by OUTvest. Their “Fixed OUTcome Endowment” product protects the value of your capital in a low-risk investment with a fixed interest rate. It is designed for high-income individuals who have already exhausted their annual interest exemption from SARS through other interest-bearing investment vehicles.

Product features:
• Hard to beat interest rates – See example below Issued by OUTsurance life
Life investment policy invested in a fixed deposit with ABSA bank
• Interest rate remains fixed for the duration of the investment (5 years)
• Interest reinvested until the end of the period
• Save on executor fees by nominating beneficiaries (can be as high as 4%)

As an example, assume a client with a marginal tax rate of 45% who has already exhausted their annual interest exemption. This client needs to get a before-tax interest rate of at least 15.8% pa to beat OUTVest’s after-tax rate of 6.80% pa.

To authenticate their competitiveness of the Fixed OUTcome Endowment, OUTvest has created an online calculator on their website for investors to calculate rates they can expect using their scenarios:

To put the above into context, below we publish the interest rates we currently get for our clients utilising the Investec CCM facility which is the highest in the market. Fair enough, the CCM rates are for immediate cash and there is a difference for companies (non-individuals) versus individuals:


6.  Refresh your confidence

The new year is in full swing and our goals are set for the most productive year yet. However, the most important is to ensure the below financial checklist is in order so you able to focus on work commitments with ease:
• Is your will updated, signed and stored in a safe place?
• Is your life cover and list of beneficiaries up to date?
• Do you have living benefits in place?
• Do you have an “in case of an emergency” file and is it up to date?
• Does your short-term insurance cover all your necessary assets, including your vehicle, home and portable possessions?

Call today and let’s discuss how we can help you achieve financial confidence.


7. Rand forecast

As mentioned in the introduction, interest rate hikes in the US, to combat inflation, is causing havoc in the markets. Investors are pricing in extreme interest rate hikes, causing concerns on economic growth and market volatility. Market expectations on interest rates are likely to eventually become more rational, but sensitivities remain high during this quarter.

Foreigners have been net sellers in SA markets this year to date, dumping -R3.6bn of SA equities (net of purchases), and -R5.5bn worth of SA bonds (also on a net basis) in the last week of January’22 alone. Foreign outflows from SA portfolio assets this year so far total -R3.0bn. Investors have been repositioning for a higher global interest rate/lower economic growth environment as the Fed Funds Futures currently price in a 1.25% overall hike in the fed funds target rate this year, a 25bp hike at virtually each meeting (five out of seven).

The rand continues to follow global markets, ignoring good news on the domestic revenue figures, which has been higher for the first three quarters of the year 2021/2022 compared to the same period. These main budget revenue figures show 76.8% of planned revenue of R1.5trilion has been collected so far, while only 71.8% of allocated expenditure has occurred, with a significantly smaller deficit, of likely closer to 5.0% of GDP (versus -6.6%), if the trend continues.

Data coming in continues to show evidence that SA is moving away from the effects of the pandemic on its economy, but it is not yet fully recovered either and markets are worrying about the impact of substantially higher global and domestic interest rates.

Below Investec’s “expected case” exchange rate forecasts as published on 31 January’22:


8. Fuel prices

The below fuel price increase became effective 2 February 2022:
• 93 unleaded petrol – 53 cents increase
• 95 unleaded petrol – 53 cents increase
• 500ppm diesel – 80 cents increase
• 50ppm diesel – 79 cents increase
• Illuminating paraffin – 101 cents increase

Rising oil prices are said to be the main drivers behind the increase and it could have been more adverse had the rand not strengthened against the dollar. The oil price at the time of writing was $89 per barrel of brent crude.


9. Chart of the month

Not really a chart but the picture below indicates the longer history of interest rates and stock valuations doesn’t show any reliable inverse relationship. In fact, if anything, the opposite tends to be true:

*Credit to Kim Littler from Ninety-One for the above chart of the month


10. Interesting stats for the month

• 20.5% – the increase in electricity tariffs that Eskom is motivating for
• 25 basis points – increase in the repo rate on Thursday last week, taking the key rate that SARB lends to commercial banks to 4%
• 1.9% – the percentage points the IMF now expect SA economy to grow by, down from its previous forecast of 2.2%
• R48m – the amount Eskom already spent in this financial year to fight theft & vandalism
• R685m – Clicks earned from vaccines in five months
• $320,662 – the value of a typical US home (up 20% on a year ago)
• 7% – US Inflation print in December’21 compared to SA at 5.9%, UK at 5.4% and Germany at 5.7%
• 5 hikes – the amount of US interest rate increases now priced for 2022
• $50 billion – Microsoft’s quarterly sales topped for the first time
• $34.6 billion – Apple’s record profit in its fiscal first quarter, which runs October through December and includes the important holiday season
• $13.8 trillion – how much the pandemic is expected to have cost the world in lost economic output by the end of 2024

*Credit to Kim Littler from Ninety-One for the above interesting stats


11. Market stats summary

The red block shows the market stats for the month of January 2022. In short, the JSE All Share Total Return index was up ↑0.9% for the month (up ↑18.9% for the last 12 months). The Resources sector was the best performing sector for the month, up ↑3.6% with the Financial sector short on its heels up ↑3.5%. The Industrial and Listed Property sectors were both down ↓-2% and ↓-2.9% respectively.


12. Financial indicators as at 31 January 2022

Global indices: (NB! Returns are measured in Rand percentage points. For example, the S&P 500 was down -9.02% for the month as measured in Rands)

JSE Sectors:


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

Interest Rates:


13.  Support local – Bella Manga

In this feature of our newsletter where we’re doing our part in promoting local businesses affected by the devastating impact of Covid’19. Most business we’ll be featuring is also clients of Vista Wealth.

Bella Manga is 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 10% direct booking discount by referring to this newsletter. Contact details:
Jenny 083 632 3018


14.  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.


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