Tuesday, 13 May 2014

Investors and The Elections - What next?

I do think that investors need to be aware that there are some other issues that are playing out that will give us some direction in the future. Thanks to David te Brake from Pioneer for the input.

The Platinum belt strike is becoming a very meaningful stand-off between the Unions and Business.

The Rand / Dollar exchange rate is being affected by some of SA’s weak economic data. Some of the key issues are the current account deficit, the budget deficit, possible lower tax collections, the financing of both these deficits, high unemployment, low job creation, inflation, rising interest rate and the lack of priority for infrastructure spending, as opposed to wage and grant increases. These issues play a much greater role in your investments than the noise around the election.
The markets have continued to perform reasonably well this year; and people keep questioning this. The sad reality is that the rand looks to be on a declining trajectory, and this weaknesses has continued to help push our markets up. This is because a lot of local businesses in South Africa have got operations outside of South Africa and those profits help the markets a lot.

The three year decline of the Rand against major currencies is a serious concern; however there is nothing meaningful that is being done to stop further declines.
The only thing that may reverse this trend in the short term is a massive increase in resource prices (gold & platinum) and to be effective, that increase would have occur and be in conjunction with a speedy resolution of the mining sector strikes. It is no good if the prices rise and our mines are all closed.

We seem to be hoping for larger and larger miracles without addressing core economic issues, and sadly none of the political parties that I have observed have really come forward with proper plans to reverse this trend. They are all shouting out the same cliches in their promises – they’ll all create jobs, they all promise to stop corruption, they all promise to improve infrastructure, etc.

I think it is prudent for investors to possibly be looking to increase their offshore exposure in the future to hedge against this currency decline so getting the best out of money transfers from South Africa is key.

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