The first six months of 2019.

After a disastrous end to 2018 we are back to almost all-time highs on the JSE and S&P500. If you need reminding; the JSE was down 12% and the S&P500 down 7% (currently up 16% ) for the year at the end of 2018. The rand was trading at R14,42/$ at the beginning of 2019 and gold was at $1281 per ounce.

In our January 2019 blog we mentioned that the JSE had to gain 35% this year, just to compensate for the lagging returns over the last five years. So far the JSE is up 10%, so we still have a long way to go. And of course the media have steadfastly enjoyed broadcasting the utter mess the world has been in, from the mud-slinging in SA politics, to the escalating trade wars between China and the USA. Brexit has finally caused Theresa May to resign and now we might see Boris Johnson leading the UK into isolation with a hard Brexit.

South Africa saw the general election come and go. The ANC achieved a solid victory which gave Cyril Ramaphosa the mandate to implement economic transformation and get rid of the corruption rot, but there is no sign of that happening any time soon. Instead he gave us an airy-fairy and very disappointing SONA speech about building new cities and bullet trains.

The rand dropped below R15/$ when Ace mentioned changing the Reserve Bank’s mandate, contradicting the official stance; and foreigners have been withdrawing their investments from SA by the billions owing to the political uncertainties fuelled by the unresolved issue of expropriation without compensation. It is very likely that Moody’s will downgrade us to junk over the next nine months, with the concomitant impact on the rand. The only good result of all this, is that there are many solid SA companies trading at very cheap valuations. If, however, Eskom turns out the lights, all bets are off for South Africa and our current problems will seem like a walk in the park.

The USA is powering ahead and for now it is the only economy preventing the world from going into a recession. Trump might be the wrong personality to administer the medicine but things are looking good in the States. The Fed might even lower interest rates which will support the economy and weaken the dollar, which will be good for US exports. Although there are some “super-star” shares trading at very high valuations, there is a large core of smaller companies in the US trading at very acceptable valuations. The US has the advantage that their problems are easier to solve than ours. Trump only needs to resolve the trade war with China and step back from his aggression towards Iran to see immediate positivity.

We saw the gold price jump almost 10% year to date to be at around $1400/oz today. That has resulted in the SA Gold Index jumping 44% ytd. Gold is trading at a six-year high but you have to remember that if you bought gold in 2013, you still have not made any money. The stock market is up 75% over that same period. We still stand by our view that South Africa does not have the companies that will dominate the way we live in the future, with the exception of Naspers for now (they will be listing all their offshore internet companies in Amsterdam soon). As an investor you have to be in the FAANG type of stocks, listed in the USA. South African companies will not be the leaders in the 4th Industrial Revolution, you will have to go to the USA, China or even Europe for that.

As an investor you have to step away from the noise and consider the points mentioned in our blogs throughout the past six months. You cannot base your investment approach on a single-outcome scenario. You cannot try and time the market for longer-term investments. You cannot expect cash to protect you from inflation. You cannot wait for the rand to be at the “right” level to start investing offshore. In these uncertain times, if you are not comfortable with a lump-sum investment, it is better to phase your longer-term investments into the market than to do nothing.

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