Market events of the past week

The Rand strengthened by 7% against the US Dollar, which is the biggest improvement since 2009. This is good news for South Africa and the Rand’s value is even stronger now than before Nhlanhla Nene was given the boot in 2015. This will hopefully have a positive impact on the fuel price.

 

Commodity news

The winner from a commodities perspective was gold. Gold has increased by 15.1% over the last 90 days. This does not necessarily mean investors should rush and buy gold, as it may decrease or stabilise as the Rand strengthens. For this reason, it is crucial for clients to speak to their financial advisor to know exactly where to invest.

 

New stock exchange

There was an announcement that a new stock exchange, ZAR X, has received approval from the Financial Services Board (FSB). The last time the JSE had competition in South Africa was in 1958 – 58 years ago.

 

A new stock exchange will mean lower costs to investors due to expected technological innovations and new investment products. For counters listed on both the JSE and ZAR X, there will be a cost benefit for investors looking to invest in bigger, more stable shares and reap the benefits of these shares.

 

What is the ideal asset class to invest in? The answer lies in diversification

The ideal position would be that if the Rand strengthens or weakens drastically, that a client’s portfolio will be hedged against overexposure either way and diversification plays a big role in this. Don’t put all your eggs in one basket, so that you are never overexposed to any asset class.

 

A common mistake investors make when choosing investments and the role inflation plays in making investment decisions

Many investors choose to earn an income of 7% – 7.5% of their living annuity to fund their living expenses, however, the problem with this is that inflation is also at around 7%. Therefore, the investor would need to have a return of 14% – 14.5% on their investment to preserve the capital in their living annuity.

 

We therefore advise clients to look at their risk appetite and investment goals – it is not advisable to accept a 9-10% rate after costs and tax, if inflation is at 7% per annum.