The first quarter of the financial year has, as predicted, been a particularly volatile one with continuing political instability in South Africa in anticipation of the upcoming local elections. In addition, the perceived split between Finance Minister Pravin Gordhan and Jacob Zuma has added to this insecurity in both the political and financial sectors. Treasury, under Pravin Gordhan, has done an exemplary job of avoiding a further ratings downgrades which would have been extremely detrimental for the South African economic situation. The S&P’s (Standard & Poor’s) rating agency decided after close of business on Friday not to downgrade us to junk status, and congratulations must go to Pravin Gordhan and Treasury for their efforts in avoiding this. However, with elections looming and mass protests throughout South Africa we foresee further volatility in the markets, and the Rand.
Historically, we see weaknesses in local and global markets between now and the end of the next quarter. The focus of the ANC has been on electioneering not managing the political and economic crisis in which the country finds itself, causing some international investors to take a negative stance in investing in South Africa.
Despite the headwinds, the All Share Index recovered significantly during this period, predominantly as a result of the rand hedge nature of some of our biggest listed entities. An ongoing recovery in the oil and resource sectors as well as retailers and banks, lifted the bourse to close at 53905 at the end of the quarter.
On the international front, the United States and their focus on their Presidential election has resulted in very little change in their index, although earnings from the United States companies continue to be positive. In Europe, the possible exit of Britain from the EU (ie. Brexit) continues to make the Eurozone “skittish” in the run up to the referendum. The migrant crisis in a number of European countries continues to absorb much needed resources and despite the continuation of austerity measures, markets have remained fairly flat over the last quarter. However, there has been a recovery in oil and resource stocks.
Globally, we continue to focus on companies with strong financial statements and high cash reserves. We believe that over the long term it is prudent to follow these companies, in order to counter local and global inflation and almost zero earnings on deposits with international banks. It is the company’s perception that, although we are expecting a year of low capital returns, the focus on growth and earnings from the companies in which we invest will help in alleviating this inflationary effect.
The financial planning landscape is set to change drastically in the short term as a result of the pending dissolution of the current Financial Services Board and the appointment of two authorities in the future. The roll out of RDR (Retail & Distribution Review) is also causing uncertainty, as the impact of this Act is not yet fully understood and to this end there is significant engagement between the financial services industry and the regulating authorities. We will keep you updated on these developments.
Unfortunately, we have had ongoing problems with Telkom so if you are unable to contact us on the normal telephone number (031 7655 937) there are alternative numbers listed below that can be used:
031 765 7068
031 765 8949
031 765 6904
Our offices will be closed on Friday, 17th June 2016 to allow staff a well-deserved long weekend. In the event of an emergency, please do not hesitate to contact one of the Directors on the cellular numbers noted below.