Have we dodged another bullet?

It took a few days, but last week we saw share prices in South Africa shoot up and the rand strengthen to below R18/$. We are experiencing a relieve rally after a decade of corruption and unabated looting of state coffers by a majority-led ANC government. Now that there is no outright winner, the newly formed government of national unity (GNU), is being given the benefit of the doubt. We can only hope that they will drag our country out of the swamp and create some sort of sustainable prosperity. It might be said that, as in the past where our country had been in very dire situations, we dodged the bullet and our heads are above water again.

The star performers were the SA-focused banking and retail sectors with a five-day surge of 11%. Property also didn’t do too badly and our JSE All Share index is once again positive for the year. International investors were also hopeful and we saw the rand go down to below R18/$. We have to remember that when Cyril Ramaphosa first became president in 2018, the markets also rallied with what was then called ramaphoria. This didn’t last long, however, and investors lost confidence.

As investors the question we have to answer, is what do we do now? We are seeing an American market that continues to go up, led by the very profitable technology companies. The S&P500 is up 15% ytd in dollar terms, enough to make any investor happy. The inflation rate is also falling and we will see interest rates coming down very soon. This will support the equity valuations and will benefit bonds. On the flip side, we are also seeing the economy in the USA slowing and it might end up being a race between a recession and a soft landing. There is also an election coming up for the Americans in November and we don’t know how that will impact the markets.

If we get some distance from the markets and politics and take an objective view, we would say that over the short term, South Africa should benefit from the recent positive developments in the country, and the USA would lag due to the uncertainty and lofty valuations. As always, we should do proper planning and make sure that our portfolios can withstand any shorter-term shocks.

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