Keep emotions out of investments – particularly in uncertain times
The trade war between China and America continued this past quarter with neither (one) wanting to relent/give up something. This left world markets in uncertainty and thus sparked worldwide volatility.
The British prevent themselves from bowing out of the European Union (BREXIT) although they voted to exit. This brings extreme uncertainty about European trade and the flow of money worldwide.
At the moment the populists are in charge in Italy in a country that is under extreme pressure with regard to their budget, economy and growth prospects. Not an ideal environment for a populist system. Expect to see interesting legislation to surface.
Locally
The Rand came under pressure (finally) with the realisation that South Africa has a LONG road to economic reform. There is still talk about land reform without compensation and a National Health plan that creates uncertainty (and frustration) with investors. Remember that 2019 is an election year.
Something that needs more attention is Eskom, SAA and the countless other state entities that is under extreme pressure with their cash flow and debt. This is costing us, the taxpayer, millions of Rands daily, but it is our reality for the time being. The current president and his team are already doing good work to stabilise the entities, but the problem cannot be solved overnight, and it will handicap our economy for some time still.
Markets
The JSE increased with 4.54% for the quarter but is still negative with 1.7% for the calendar year. In the same calendar year, the property sector is negative with 21.37%. Resilient, Fortress and NEPI Rockcastle is the reason for the substantial decrease in this sector. We are still of the opinion that an investor must not get rid of a sector just because of one or two “bad apples”. Smart investors didn’t sell all their shares after the Steinhoff debacle.
With rising interest rates in America and the weakening of the Rand (and naturally our economic situation) local stock prices decreased. Property share prices and dividend returns in South Africa is measured against that of stocks. Even though we do not totally agree with this, it (still) happens, but it also provides opportunities. Growthpoint can now be purchased at 7.7% – a historic income return. Redefine can be purchased at 8.96% and SA Corporate Real Estate at 10.23%.
Q3 Y18 What Lies Ahead?
The trade war will continue and therefore volatility will prevail worldwide. Hopefully America and China will reach a compromise. It might not seem so, but Donald Trump and his team fully considered the war before starting. Expect it to continue.
The economic upswing is losing traction worldwide and this will place future growth under pressure. The best investments are however made in difficult times as the prices paid for the investments are favourable. So do not take action with your investments out of fear. Rather contact knowledgeable advisors to assist you in the difficult times, keep your eye on the long-term and focus your investment on assets that will return a favourable income (dividends and rental income).
