The Reserve Bank left interest rates unchanged

This week, in addition to the weekly market update, Floris Slabbert cautions investors to reduce investment costs to boost returns during turbulent market conditions.

As we predicted last week, the interest rate remained unchanged, however, we stand by our prediction that we’ll see some changes later this year. Some of the contributing factors of further interest rate increases are the possible hikes in Brent crude prices, the rand weakening, but above all the decision will be influenced by the events on 3 June – when ratings agency Standard and Poor’s announces their decision about South Africa’s credit rating. We are however, positive that there are enough positive influences in the economy to secure a positive outcome for South Africa.

Market overview

The rand strengthened to R15.72 against the dollar – almost R1 stronger than it was in January.

When looking at the JSE all share index, it closed higher by 2.29% and in the last ninety days it traded 9.93% higher – again, some positive news that credit agencies will be considering.

When looking internationally, the NASDAQ is down by 0.68% and in the last 90 days also performed poorly, losing 5.38% of its value.

Gold prices are down by 1.72%, however in the last 30 days it is still trading 13.58% higher.

Oil prices are down to $48.19 per barrel, compared to $65 per barrel this time last year. Nigeria, an economy reliant on oil, has announced an interest rate reduction of 1%, to 10.5%. This is the first reduction since 2013.

 

So what is the good news?

The latest inflation figures showed that there was a downward movement from 6.5% to 6.3%, which is good news for consumers, especially since interest rates were left unchanged.

 

Reduce costs to boost investment returns

There are two important things to consider – firstly, the top 10 unit trusts have been announced and many of these maintained returns of more than 15% on average for the year. So, there are many possibilities for good investments yielding more than 10% per annum out there. Just always bear in mind that past performance is never a guarantee of future results.

Secondly, very important to consider to maximise your investment value, are costs. A 1% cost saving on an R1 million investment amounts to R10 000 per year. This amount with compound interest over a five-year term would be R51 000. Therefore, when looking at a saving of 1.5%, that would mean a saving of R71 000 on an R1 million investment over a five-year term. Investors would be wise to shop around for the best possible returns and the best possible cost structures.

 

What else is there to look out for?

In terms of market news – the fact that the rand is still under pressure, will be good news for gold prices, but we trust that the metal price will stabilise from here and will not reach the $1300 per fine ounce as predicted