An Emotional Roller Coaster

On Thursday last week the figures for the year to date looked like this:

JSE All Share – 21%
S&P500 – 22%
FTSE UK – 27%
DAX Germany – 28%
Rand/US$ – 32%
SA 10-year bond yield 10%
US 10-year bond yield 0,59%

If you look at these figures, you would think that investing in the US and SA had been equally bad, but if you just take the returns history back five years, you will see the following:

Investing in JSE All Share – 14%
Investing in S&P 500 +20%

But that is not all folks, if you converted your dollar investment back into rand you would have made an additional 57% profit due to the weakening of the rand.

Moody’s downgraded our debt rating to junk and the result was a further weakening of the rand, a spike in our bond yields to over 10% and a dramatic fall in the share prices of our banks. Banks cannot have a better debt rating than the country, so they were also downgraded to junk, hence the fall in share prices. As we have highlighted before, the weakening of the rand and bonds could just be a knee-jerk reaction and history has shown that the recovery will take only a few months – if things are not different this time.

Covid-19 has become the biggest world-dominating event since the financial crisis in 2008. The good news is that progress is being made on the medical side with human vaccine trials well under way. Abbott Laboratories in the US has also developed a test where you get positive results within five minutes and negative results within thirteen minutes. It is small, portable and they can roll out 50 000 tests per day. There is also a flattening of the infection curve in some countries already.

In South Africa we are in our second week of total lockdown. The list of DIY jobs at home is getting shorter very fast and the temptation of going out is getting stronger. It is, however, important to adhere to the rules because the best way to stop this virus is to prevent it from spreading by not having human contact (see graph below).


Speculating about what the future holds, one gets the feeling that South Africa is going to take much longer to recover than a stronger economy like the USA and even China. The greatest worry is the social impact this economic shutdown is going to have. Millions of people will be losing their jobs and many businesses may close down. In the US ten million jobs were lost during the second half of March and in South Africa it seems that more people may be unemployed by the end of this. In the US we expect to see a sharp recovery afterwards, but SA was already in ICU when the virus struck, so we will need something spectacular.

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