Our expectations beginning of 2017
In a newsletter to clients at the beginning of 2017 we predicted that the JSE All Share index could trade up 25% (actual increase was 18%) and that the rand could be at R12 to the US$ (actually R12,48) at year end. We did, however, believe these figures were unlikely given the dire situation of the SA economy and the pressure on the rand due to US$ strength, rising US interest rates and SA credit downgrades.We also anticipated a better year for investors worldwide and for political reform in SA. We expected companies that had been hit hard by the Brexit vote to bounce back somewhat over the 2017/2018 period. So far we haven’t seen this happen, so we have to hope for the bounce in 2018.
Actual developments in 2017
We had a painful but necessary political year during which the Zuma/Gupta/State Capture cancer was exposed and sanity prevailed when Ramaphosa was elected new leader of the ANC. We watched the stellar performance of a handful of Top40 companies like Naspers (+64%), Richemont (+30%) and Anglos (+27%). A real shocker hit us when Steinhoff admitted to dubious accounting practices and the share price tumbled 90% in a matter of days. On the flip side, Bitcoin shot the lights out and gained something like a thousand percent, shining the spotlight firmly on crypto currencies. We saw oil hitting $60 a barrel again and gold passing the $1300 mark. It is interesting to note that although the rand strengthened around 10% against the US$, it lost ground against the euro and the pound. Inflation was 4,6% for the year.
And now to 2018
Looking at 2018 we have to admit that we expect it to be a smoother ride than 2017 had been. Our crystal ball predicts the JSE All Share index to be at 71 000 points at the end of the year; that is another 19% increase. We do, however, understand that this will require the majority of the shares that underperformed in 2017 to get things right and our hopes are on companies like Barclays, Firstrand, Investec, Life Health Care, Old Mutual and many more. Looking at the rand we expect the new positive political potential to support the current strength but if we get another credit downgrade in February, we might see it drop towards R14/$. In the longer term the rand will lose ground against our Developed World trading partners and our portfolios should have a good chunk of dollar exposure to stabilize the ship.
Future superstars
We do, however, see the future superstars for investment as those industry disrupters such as Google, Amazon, Netflix, Apple, Baidu, XPO logistics, JD.com, Blockchain, Tesla, Nvidia and many more. As we have mentioned before, these companies and technologies do not reside in South Africa and you have to buy them on the international platforms. Although some of these companies are already expensive, they are so powerful and cash flush that they can continue producing earnings growth by being early investors in things like AI (Artificial Intelligence), self-driving cars and online consumer gratification. The growth possibilities in these industries are mind-blowing and barring any management fraud like we have seen at Enron, Worldcom and Steinhoff, the future is bright. The only drawback is that, because the growth in these sectors is exponential, not all the start-ups will make it.
Reminder
We live in exciting times and we have to keep up with developments. We are sure there will be surprises in 2018, both positive and negative, but as long as we do not place all our eggs in one basket we will prosper over time.
