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Global Outlook Trumps Local Viewpoint

“Many people are currently quite negative about investments on the stock exchange, mainly because of the low returns of the last two to three years. For South Africans, the political situation is also an inhibitor and the economy is viewed through a prism of corruption and political discord”, says Carr.

He cautions against focusing on this negativity. “The reality is different. Political events in South Africa cause volatility in the short term, but in the long term they usually have less of an impact than the international economy would”. Carr suggests examining some global trends, in order to understand what is expected in the future.

  • Inflation pressure is slowly coming to the fore in countries where inflation was virtually zero. This indicates that consumer demand is picking up systematically.
  • In many areas interest rates are at a low and thus create an opportunity for economic recovery.
  • The figures for the gross domestic product (GDP) are starting to surprise on the upside in most economies, which indicates a faster acceleration in economic growth.
  • The cyclical recovery is taking place just about everywhere, with the US perhaps the slight exception where the situation has been improving since 2009. However, it is the first time that emerging and developed markets have started to recover simultaneously.
  • The GDP figures of the major powers, such as the US, Europe (East and West), China and Japan are all strong, and therefore are indicative of a simultaneous recovery in the global economy.
  • The Baltic Dry Index, which measures shipping of bulk commodities, has started to increase sharply, indicating increased transport of goods and therefore trade between countries.
  • The Chinese production figures, as well as exports, are constantly looking better than expected. This also indicates an increase in demand.
  • Although South Africa has distinct problems, our stock exchange's earnings are still more than 60% offshore, and any recovery in offshore markets is likely to have a positive influence on our market.
  • Economic growth in global markets usually leads to a greater demand for commodities and because we still have great exposure to commodities, it will have a direct effect on the local exchange.
  • Economic figures have reached the phase in the economic cycle where the exchange is continually surprised with better-than-expected figures. In such cases, the price-earnings-ratio (PE) of many stocks can decrease to more acceptable levels.

Marais concurs on the global outlook, and is adamant that we consider the ‘green shoots on the economic landscape’. This is helpful to reassure ourselves that there is hope for recovery. “The Chinese economy still is growing at between 6% and 7%”, he says. “This is positive for South Africa, as we are driven by commodities”. Locally, inflation is expected to decrease to between 4% and 6% during the next year. Interest rates should also decrease, and thus create relief for the consumer. “The sword of a further downgrade by Moody’s still may be hanging over South Africa, but the expectation is that this largely is priced into our market already,” Carr says. “Markets, in general, with fluctuation in between, should move upwards consistently over the next two years”.

Bye-bye Recession

“The recession, officially, is over” says Marais. “Consumers may not feel it in their pockets as yet, but there is definitely an upturn in the economy”. As Carr does, Marais cautions against allowing what he calls ‘short-term noise’ – all of the economic and political distractions – to railroad personal investment objectives. “Investments are, by their nature, long-term. There will be ups and downs on the journey, and some downs may seem devastating, but they should not underpin the investor’s future outlook and goals”.

Decreasing Cost of Debt

The declining inflation rate bodes well for the interest rate stabilising, and is a positive for consumers incurring or managing debt. This also has a positive impact on the individual’s disposable income. A downer though is the oil price which is on the rise, leading to fuel price hikes, which always has the negative knock-on effect on consumer spending.

South Africans Are Resilient

“South Africa has been in much darker places before. Everything happens in cycles, and the people of this country are profoundly resilient”, says Marais. “Civil society has found its collective voice again. What is emerging now truly is a mature, fully-fledged democracy. Also, let’s not forget that that our media largely continues to be free and fair.”

On the stock exchange front, he has noticed a recovery of equity market performances inflation to the same time last year. We have total return of the JSE All Share at 13.57% versus 5.81% at the same time last year (October 2016).

Marais reminds us that we have a very strong judiciary; our central bank is excellent; and our financial system is advanced and comparable to any in the developed world.

His Top 5 Tips to Keep Positive, could help us through the festive season and well into 2018:

  1. Do not deviate from your investment plan. If you have a willingness to invest, stick to the long-term financial plan that you have created with your financial planner. The big positive is that your plan will most likely outlast the present political administration.
  2. Keep your annual financial check-up with your financial planner. It really is as important as your annual full physical. It will help you find financial direction.
  3. Only you live your life, and only you know what it costs to live it. Take careful stock of your lifestyle and circumstances and plan accordingly. Be honest and realistic.
  4. Revisit your budget. Life happens and your circumstances change sometimes without you realising it.
  5. The 2017 festive season requires financial discipline more than ever before. This is the time to depart from the rampant consumerism of the past, and return to the opportunity for spiritual and familial connection that the holidays afford. It is possible to have fun on a strict budget, surrounded by friends and family. But it takes creativity and sacrifice.

This year, let’s focus on spending time – not money that may be in limited supply – on the people who are dear to us.

1 The Grinch is a fictional character created by Dr Seuss. Grinch is best known as the main character of the children's book How the Grinch Stole Christmas! (1957). The grumpy, anti-holiday spirit of the character has led to the term "Grinch" coming to refer to a person opposed to Christmas and festive season celebrations.

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