The Financial year end was a volatile one as a direct result of local and global politics as opposed to market fundamentals. In South Africa the division within the ANC and Government Departments has caused international and local sentiments to be negative and, as a result, the year has seen increased outflows of foreign funds that were previously invested in South Africa’s stock exchange. The continued spat between Treasury and Jacob Zuma also poses a continued risk of ratings down grade by the international ratings agencies. Despite these pressures, our rand has performed well against the dollar and the pound. This is a result of resource backed economies coming back into favour as the base metal and oil prices recovered somewhat during the course of the financial year.
Having retained his post, Pravin Gordhan presented a budget that will have a number of effects on investors. Dividend withholdings tax was increased from 15% to 20% and the higher marginal income tax rate was increased from 41% to 45%. This, coupled with the earlier change to trust tax legislation (loans to trusts will now incur interest) is causing a significant amount of planning to be done on individual’s tax structures and investment portfolios. The very low growth environment in South Africa, recently revised to about 1.5%, means that the consumer is in for tough times with increasing expenses but lower income. Despite all the doom and gloom, the outlook for the coming year is more positive than last year, particularly given the recovery in the rand and the resource markets.
The political landscape internationally has had a noticeable impact on the major bourses with Brexit and the election of Donald Trump. The unraveling of the United Kingdom from their interaction with the EU is ongoing and has seen the pound weakened as a result of this political instability. In other areas in Europe there are referendums being held to determine whether or not some of these countries will remain in the EU, already affected by the departure of the United Kingdom. The United Kingdom itself has seen a dramatic increase in most of the FTSE listed 100 stocks and this is predominantly due to their dollar earning capacity.
The United States and the election of Donald Trump caused jitters around the world but despite his electioneering campaign, is proving to be a more pragmatic President. As a result, markets have reached all-time highs, given Donald Trump’s expansion plans, and a strong American economy is good for global growth.
The Chinese economy continues to grow satisfactorily with their focus on renewed growth which bodes well for resource backed economies.
On the compliance front, we have now seen the roll-out of CRS (Common Reporting Standards) and most clients have been updated in this regard with the submission of their tax numbers to the relevant investment and banking institutions. If you have any questions, queries or concerns around any of these, please do not hesitate to contact us directly.
I would like to take this opportunity to wish all of our investment family the very best for the coming financial year, which we know will be a challenging one but believe a positive one.