Floris Slabbert talks to Die Groot Ontbyt viewers about the recent market developments following the Brexit vote.
Markets reacted strongly to the results of Britain’s referendum decision to leave the EU. What are the latest developments following the Brexit vote?
Britain’s Minister of Finance, George Osborn, tried to instil calm, but with little success. He also tried to convince markets to disclose how much liquidity there is in the treasury and what kind of support there would be. Governor Mark Carney offered 250 billion pounds, or 330 billion dollars to try stabilise the financial system and promote economic growth. There is also a risk that Britain’s key interest rate will be reduced to 0% which could contribute to an economic slowdown.
However, Standard & Poor’s already decided to strip the UK of its final AAA rating, and subsequently credit ratings agency Fitch also downgraded the UK from AA+ to AA, warning of “an abrupt slowdown in short-term GDP growth” as a result Brexit.
How did local markets react?
Locally, the JSE All Share Index closed at 53 500 before the announcement, and shortly after, went down to 50 087, shedding 6.5% in value. The rand traded at R14.31 against the dollar and this morning traded weaker at R15.43 against the dollar.
How will this affect the Reserve Bank’s interest rates?
We are still anticipating an increase of 50 basis points by December, which for consumers would mean budgeting for an additional R340 per month on a bond of R1 million.
Amid this economic uncertainty, what are the positives?
During these times, investors need to carefully consider their fund and asset managers. There are still very profitable investment opportunities in South Africa and diversification remains crucial to ensure your exposure to one specific asset class is not too high.
Advice for investors
Most importantly, do not act impulsively – especially if you are a conservative investor and not sure what the next few years hold following these negotiations, rather tie your money up. Choose an investment of three to five years and secure a fixed rate. That way, the Brexit vote and South Africa’s own financial or political developments will not affect your long-term investment strategy.