We had great expectations for 2018 but things went wrong and we ended the year 12% down on the JSE All Share Index. The rand weakened by 15% against the US$ to end the year on R14,42/$, which helped our international investments but after a good year the US markets also collapsed in November and December dragging the S&P500 down to end the year 7% lower.
On the good side the price of oil is down 19% and the average inflation rate for SA was 4,51%. If we take an average inflation rate of 5% and an average real return on equities of 6%, the JSE All Share Index should gain 35% this year just to make up for the lagging returns over the last 5 years.
Looking at 2019 we see a couple of big issues that need to be resolved. Globally we have the US/China trade wars and Brexit; and closer to home the general elections in South Africa. Expect a lot of political mud-slinging everywhere over the next few months and try not to get swept up in it.
Donald Trump is starting to cause his own country and the rest of the world some serious damage with his trade wars and internal political demands. We can only hope that he tones it down a bit and that sanity will prevail. We believe that many quality companies in South Africa and also in the US are either cheap or fairly valued after a heavy sell-off in 2018.
If we look at the investment strategy for 2019 we have to ignore the noise and look at the fundamentals. Cash has been king for the past 5 years but will not be for the next 5 years. Although there are many political and economic uncertainties, share valuations are compelling and should not be ignored for longer-term investments.
The rand is relatively undervalued and although it can go either way, international investments should be made cognisant of the fact that the rand can strengthen from these levels. As always, diversification is the overriding factor when formulating an investment plan and patience is the biggest virtue.