Traditionally at this time of the year we consider the year past and try to look through the noise for any potential future impact on the investment landscape. Well, this year has been a year of deafening noise! It stared locally a year ago with Nenegate, followed by a great deal of political noise, not helped by the drought, the economic downturn and the risk of ratings downgrades.
Who could have imagined the rise of populism in the guise of Brexit and more recently the Trump victory, and potentially also in the coming months in Italy, Austria and France?
Both Brexit and Trump introduce uncertainty, which financial markets do not like. We saw great uncertainty after the Brexit vote; consider the fall in the value of the Pound. In the case of Donald Trump, the unknown factor stems from the fact that he is a political novice and highly controversial.
Over the past 3 years we have been warning clients to moderate their expectations, think long term and accept that the medium term investment growth path would be erratic at best.
The good returns of 2013 and 2014, have been followed both locally and offshore by lower or negative returns in 2015 and 2016. Over the past 12 months our stock exchange index for resources has been flat, and for financials and industrials, negative. Company earnings have fallen over the past year.
The Rand has strengthened by 20% against the Pound (or should we say the Pound has weakened?) and is flat against the US Dollar and Euro over the past 12 months.
We can expect rising taxes next year, but at least we seemed to have averted a ratings downgrade.We can also expect low returns, but hopefully the start (probably anaemic) of the cyclical recovery, led by the recovery in commodity prices, which seems to be underway.
Should one retreat into the safety of cash? We think not! Cash returns are below inflation on an after tax basis, and there is no prospect of growth. Better to ride out the wave with growth assets. Research has shown that the major increases in value happen over a few trading days, so the risk of trying to correctly time the market is high.
We prefer to have a long term view and carefully select assets that are geared to deliver to a client’s investment profile over time. Difficult as it may be, it is wise to ignore short term noise.
At least the rains have come to many parts of the country and our courts continue to uphold democracy and the constitution.
Best wishes for 2017!