Successful businesses grow and survive in times of change when they identify viable opportunities and pursue them with focus and perseverance. It requires entrepreneurs who can analyse the risks of the macro environment and convert ideas and vision into successful products and services.
What is happening to the markets now?
There are strong indications that the American bull market, which has never fallen continuously by more than 20% in the past nine years, is now losing momentum.
For South Africa it has serious implications because, unlike other emerging economies, we failed to benefit from the American bull market due to our internal economic and political woes. Yet, like the rest of the world, we will bear the brunt of an American bear market if it is indeed what the future holds.
That means South Africa can enter a second consecutive bear market which has dire consequences for our economy. It will force local companies to run calculated risks and reposition their businesses.
Unfortunately, although under President Ramaphosa’s leadership effort is being applied to change this; South Africa has lost its sparkle as an investment destination when compared to other emerging countries. A hijacked economy is not in a position to perform.
But it is not just our internal issues that are to blame for these uncertain economic times. According to the South China Morning Post, billions of dollars are moving from Wall Street to European and Asian stock exchanges in anticipation of the trade war between America and China, which has already started.
It stems from the Trump administration’s insistence that China should adjust its intellectual property practices, open its markets for foreign competition, lower high subsidies on its technology products, and take steps to balance the trade balance with America. This has led to tariffs charged by both parties, amounting to billions of dollars.
Indonesia’s president, Joko Widodo, warned at the recent International Monetary Fund’s summit that the trade war between America and China will have serious implications for both developed and developing markets.
Francois Villeroy de Galhau, Governor of the Bank of France, said that as a result of this threat, the world has suddenly moved from synchronised growth to economic division.
The International Monetary Fund has already adjusted its global growth prospects from 3.9% to 3.7% for 2018/2019 and warned that emerging economies will feel the impact first if the American Federal Reserve and other major central banks tighten their monetary policy faster than expected.
The change or stability in US interest rates over the next few months will prove to be crucial. If inflation increases in America, interest rates will increase. This has already started with wage inflation (unemployment is at a record low), which is rising sharply in America and which will increase consumer inflation. As a result, the ten-year Treasury bond rate (currently below 3%) will be increased, which will mean the end of the American bull market.
Can we escape junk status?
Locally, the possibility remains that Moody’s Investor Services will downgrade South Africa within the next few months. Moody’s is the only one of the three credit rating agencies that still rates South Africa’s sovereign debt as investment grade, Baa3.
A downgrade by Moody’s will result in South Africa’s exclusion from (amongst others), Citigroup’s World Government Bond Index. As a result, it is estimated that between R60 and R140 billion of foreign investment will flow from the local bond market, because the index requires securities to be invested in non-junk status countries.
Focus on opportunity, not chaos
However, these uncertainties also create opportunities which could be capitalised on. Like the famous words from JD Rockefeller, arguably the wealthiest man of his time and in history: “The way to make money is to buy when blood is running in the streets.”
Ecsponent’s investment philosophy remains unchanged during uncertain market behaviours. We invest across a wide spectrum to diversify the types of assets we hold, across geographies, currencies and profit horizons.
This strategy has allowed us to thrive during the past seven years and invest in an asset base diversified across different growth sectors. In addition to that, our operational investments in credit and investment services continues to focus on niche areas where consumers are under-served through existing channels.
As an agile organisation, we are well positioned to respond to market challenges as they appear and find the opportunities when the rest of the world sees blood on the streets. Register to attend our roadshow to learn more about the opportunities we expect to develop and how investors can navigate the complexities of changing market conditions.
For our preference shareholders it means that we continue to provide stable, predictable returns which ensures peace of mind.
When more is less – always read the fine print
Maximising returns is every investor’s goal and investors cannot be faulted for noticing promises of great returns from products that usually offer much more modest results. In part, these higher than expected investment returns can be attributed to a misalignment between advertising and fine print.
Do you know what to look for when comparing investment rates?