The cold war is back, but this time it may be colder

Russia is a brutal dictatorship and one of our best friends. Another good friend is China, and so are, of course, India and Brazil. In a situation like the one we are experiencing at the moment, countries have to choose sides and South Africa has made its choice. The slide below will be in evidence around every government’s decision-making table for years to come, showing clearly that South Africa stands with Russia. Our government chose not to condemn the Russian invasion of Ukraine and, notably, the only BRICS country to vote against Russia was Brazil.

Why is this important to you and me? Well, anyone who sides with Russia, may be heading for the same devastating isolation Russia is experiencing at the moment. To give you an idea of the pain a Russian citizen is going through at the moment, consider the following: the ruble has become 40% weaker against the US$ over the last month. The Russian stock exchange is down 39% year to date. Russian banks have been taken off the international payment system called SWIFT, effectively blocking any Russian citizen from accessing their international funds. Russians cannot leave their country and cannot access their international assets. Russian athletes and performers may no longer compete or perform outside Russia, regardless of whether they support the government and agree with the war.

The tragedy is that Russian citizens have no vote in the Putin dictatorship and those who protest, go to jail. There are some stats out that indicate that the older and less educated Russians approve of Putin, but the younger, well-educated people do not. Now compare that with the destruction in South Africa caused by Jacob Zuma and the fact that his faction in the ANC still has so much support.

One of the most painful lessons investors have learned over the last few years is that asset valuations cannot be used in isolation. Over these past years most investment analysts have preached that Emerging Market (EM) shares are such great value compared to Developed Markets (DM), but there was a reason why the EM shares were so cheap: the Emerging Market index gave you 8.8% return compared to the 26% the S&P500 gave you over five years. From the beginning of 2021, EM has given you -9% and the S&P500 18%.

China destroyed wealth with their regulations in 2021; Turkey is a basket case; Argentina defaults more on their debt than Eskom without bailouts; and now Russia invades a sovereign country in the face of worldwide condemnation. If it were not for our Resources sector, the JSE may have dropped as much as Naspers – owing to their Russian and Chinese exposure – namely -51% over the last twelve months. It is clear from the way the West is sanctioning Russia that governments should be very careful when it comes to making radical decisions. The pain will not only be felt by the government, but even more so by its citizens.

In South Africa we still have the three most important ingredients for a happy life, namely freedom of speech; an independent judiciary; and a sense of humour. We have to guard these with our lives.



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