Dear Client and Investors,
And….., here we go again.
The coronavirus shows some color on the stock exchanges worldwide. This time red all over. The Bull market took some body shots the past week. It seems very serious. It has been the worst week for stocks worldwide since the financial crisis in 2008. The S&P 500 has fallen over 10% in the last few days.
Since early January, the coronavirus has been getting more and more coverage. Initially, the hope was that it would be contained in China, but it has subsequently spread to 65 countries. After China, Italy and Iran have seen the most deaths from the virus. The impact on Italy, a developed country, has been most worrying. The country quarantined ten towns and has experienced 29 deaths from just over 1000 infections.
Globally, active cases of the virus have actually started to drop, with more people being cured than infected most days now. However, measures to contain the virus have resulted in a real disruption to world trade, travel and production, thus the market reaction.
The regular flu or seasonal flu, as we know it, claims about 56,000 lives each year. Corona has so far claimed under 3,000, with just 90,000 people so far infected. Thus, while the virus and its spread are unnerving, it is clear to see that people are overreacting. In a more amusing development, it seems that some people are linking the virus to the Corona beer. The Corona Beer shares, therefore, fell to the lowest level in two years. Crazy!!!
The timing of all of this is not ideal - the end of the financial year. As a result, when investors receive the end of the financial year’s investment statements, it’s not going to look good.
In the next week, I will be meeting with our research team to discuss these developments. This team looks through the noise and will advise on positioning without emotion – their decisions are not taken lightly. So, my suggestion is not to overreact and not to take anydrastic steps at this stage. Within the next few weeks we will know where we stand with the Corona matter – it could well die down as fast as it appeared.
The bottom line is that our portfolios are well diversified. Although we can show losses, we are positioned to avoid drawdowns more aggressive than the market, and aim to recover as quickly as possible.
I think we all agree. We live in exciting times.
On a positive note!!!! It is raining. Dams are getting water—what a relief. The dams around Windhoek will be nearly full by the end of this weekend – something that hasn’t happened since 2011, and has only happened three times since the 1970s! I sincerely hope that parts of our country are not skipped.
Another positive. The oil price for a while dipped under $50.00 last week. Is it heading towards $40? Possibly because Corona has slowed global trade, grounded airplanes and disrupted manufacturing and tourism. Thus, weaker demand can result is an oversupply. And the demand is decreasing.
Where is the Rand heading? Jumping over R1 to the USD in a matter of weeks, will it keep going? Is R16.50/US$ too far-fetched? If so, Then I’m glad the oil price is where it is at the moment.
Everyone always wants to know when the best time is to invest. These aggressive sell-offs are often it. While Corona will have some fundamental impact, valuations may start to look very favorable if it turns out the response is over-done.
Global trade slowing is a bit of a worry, however, as it may cause the US to go into a much-awaited recession. That said, the US economy is resilient, and will likely bounce back quickly. Lower interest rates globally are likely, however, meaning a big shot of global liquidity – this will be good for the Rand. A strong Rand and lower global rates will also mean the Reserve Bank will cut interest rates to spur some growth. Two cuts this year is not at all impossible, and BON will likely follow suit. Thus, it is crucial to start looking at more risky assets.
In the meantime, we wait for the Minister of Finance’s budget speech. Our country’s financials are in a horrible state. Big budget deficits mean Government either needs to find more revenue or reduce spending further. To increase income tax or VAT may seem to be the solution for the Government, but it will kill the already struggling private sector.
The only real option is reducing expenditure, and most of the public expenditure is wages and salaries for Government employees. Willthe Minister of Finance realize that our economy cannot afford such a large Government corp? Let’s wait and see. We are still waiting on promises from previous budget speeches, for example page 23 of the 2019 budget speech. And I quote: “as a tax incentive for saving and improved domestic investment capability, increase the tax-deductibility of retirement fund contributions from the current N$40,000 per annum to 27.5 percent of income with a maximum of N$150,000 to encourage savings and provisions for retirement.” After a full year, nothing has been Gazetted yet.
Meanwhile, NAMFISA starts levying pension funds and retirement contributions on seven different levels and even backdate that. Cruel but true. A topic for another day.
NEEEF/B reared its head again this month. The bill creates a framework for “empowerment” but contains very little detail now. All of the details will be determined in regulation. Nevertheless, the core of the bill is the same – Government is going to be dictating more and more to private sector and telling private sector how their businesses must be owned and run. This is another concerning development, and not a good one for the country.
A final word, when receiving investment statements, don’t jump to conclusions and instead wait for quarterly reports.
Enjoy the rain and regards,
Kerrie Mostert