Decisions made by major rating agencies come and go. The more they change, the more they stay the same. Standard & Poor’s has been the latest credit bureau to cut South Africa some slack, in not cutting the sovereign to a non-investment grade. Similar leniency has been shown by Fitch and Moody’s over the past 12 months. In the following year, they may however not be that patient, demanding more tangible progress with reforming the labor market, political cohesion and overcoming the challenges that poorly managed state-owned enterprises (SOEs) pose to economic growth.
Admittedly, no one likes being told what to do. That applies to decision makers in the public sector as well as in the private sector. South Africa continues to flirt with the makings of a recession, where another slip on the credit rating ladder could open up the possibility of borrowing funds from the International Monetary Fund (IMF). While this conjures up images of a bailout, it may not necessarily be as bad as it sounds. Loans come with prescribed conditions to them. The biggest will be boosting GDP growth to a more respectable level, from the lethargic level of 1% it appears destined to grow by over the next few years. The détente that was brokered this year between the government and leaders in the private sector, to halt a further slide in the country’s rating, is significant. It shows the two sides being poles apart on many things, but that the success of the economy is not the preserve of only one side.
Public-private partnerships (PPP) have emerged as a credible tool in meeting infrastructural development challenges, by harnessing the strengths of the private sector and government. The private sector provides technical know-how, management and finance for any key infrastructure project. The public sector offers security for private sector investment and also guides the PPP process through a legal and regulatory framework. A special purpose vehicle is established by the private sector, which raises a combination of debt and equity to finance the project. This structure is particularly important for SOEs; the financier will look more at this structure than it will at the cash-strapped public entity.
This framework is internationally recognized and respected. It encompasses a spending program of more than $58 billion, stretching over the following three fiscal years. Much success has already been seen with Africa’s largest PPP project –the Gautrain Rapid Rail Link, which came in around $1.7 billion. Renewable energy projects have also been successful.
However, the Infrascope project, financed by the World Bank to investigate how prepared and willing 15 African countries were to implement key PPPs, found that the process had challenges. Projects can be difficult to execute, legislative and regulatory processes can be tricky, and a high level of financial skill, sectoral knowledge and familiarity with the different structures which PPPs are needed. International investors also observe that bids have a large element of non-price factors, such as the promotion of black economic empowerment, job creation, socio-economic development and industrialization. Foreign bidders say that these local factors are too demanding and play a larger role than they should. Local stakeholders, such as trade unions, are also skeptical of PPPs, mistaking them for privatization of government assets and wary of the job losses which could accompany such projects.
It is not enough that South Africa’s GDP is growing by less than 1%, nor is it enough that reforms in the labor market have been insufficient to dent a 27.1% unemployment rate. It is also not sustainable that around half of South Africa’s population receives some form of welfare and dependency benefits.
How long it takes to rebuild the economy is difficult to say. It will take at least as long as the 33 consecutive months at which the annualized rate at which the South African Reserve Bank’s leading indicator has contracted.
Amid all the uncertainty, the one mantra which remains steadfast is that politics leads economics.
How to invest in uncertain times: 6 Essential tips you should follow
Currently we all are experiencing uncertain times & everyone is worried about their investments & savings. The COVID-19 pandemic has caused many South Africans to be concerned about the state of the SA economy and its long-term future recovery, with most countries under some sort of lockdown.
Since the start of 2020, many of the JSE’s Top 40 stocks have lost as high as 38% of their market capitalization from the year high to mid-March low, but since then market has recovered some of its losses as of April.
The South African Rand has depreciated to its all-time low touching R19 in the start of April, which is almost 30% fall against the US Dollar since the start of year, this has happened as foreign investors are choosing risk aversion.
When the global markets are in free fall during a crisis, it may seem that investing during such times is an unwise decision, however, the opposite may be a smarter move.
If the markets fall due to widespread panic and uncertainty, it may seem like you need to cash out to protect your capital. But withdrawing your investments at such a time may be a bad move since you will get a low value for your investments and it is very likely that the markets will rise again once the uncertainty passes. In fact, investing even more in good companies when the markets are low may be a wiser decision.
The decision to invest more or withdraw your investments should depend on your personal and financial circumstances. If you have lost your source of income, then it may be a better choice to hold off investing & focus on paying your bills until you regain financial stability.
But if you have spare cash, here are a few important things you should keep in mind before making investment decisions in such times.
- Make a Financial Plan
A sound financial plan is a strategy that takes into account your current financial situation and aligns it with your overall financial goals. A financial plan doesn’t simply mean investing.
Your financial plan needs to have clear goals. Make an estimate of the kind of returns that you would need from your investments to achieve your financial goals. Take into account the kind of risk that you can bear in case the investment goes wrong. Do not invest in high-risk portfolios that promise high returns unless you have the appetite for such risk.
Once you have calculated how much you want to invest, review the different investment strategies & options that are available, that align with your goals and risk-taking ability. Select a strategy that works for you.
Your financial plan should be made taking into consideration several factors such as the purpose of investing, the time-period of your investments, and projected inflation in the country during that period.
- Review Your Budget
The most critical aspect of your financial plan is your budget.
A budget is a breakdown of your earnings, savings, and expenditure. While making your budget, you should calculate your monthly expenditure, how much you need for essentials, your rent expenditure, how much you need for emergencies, your children’s education, loan repayments, insurance premiums, and any other expenses.
Once you have a budget in place, you are in a better position to know how much you can afford to invest and the level of risk that you can bear.
As a rule of thumb, you should only invest the money that you can afford to lose. If you can’t lose any of your capital but still want to invest, then consider highly safe options such as fixed deposits at banks.
- Look for Opportunities
Depending on your investment strategy, conduct market research to spot the best opportunities.
If you’re looking to invest in equities, check the sectors that are performing & expected to do well during the current market slowdown. Review the fundamentals of top companies in these sectors to judge whether they will continue to grow long-term. For example, pharmaceuticals and FMCGs are currently outperforming other sectors, due to the rush for essentials.
Are these stocks available at a good discounted price? Look into the dividends they have distributed in the last 5 years and the earnings per share (EPS).
Currently, the Johannesburg Stock Exchange has lost over R4.5 trillion in market capitalisation since the beginning of the year. This is a good opportunity since most blue-chip companies are trading at a severe discount of around thirty per cent (compared to 52-week high). Try to invest in safe blue-chip companies rather than high-risk stocks in difficult times.
If you’re looking to trade in currencies and derivatives, then this may be a good time since the market is experiencing the highest levels of volatility in nearly 5 years. Currencies that have been relatively stable for many years without much movements such as the EUR/USD are now experiencing high volatility.
While currencies of emerging economies like Rand (ZAR), Brazilian Real, Russin Ruble, Nigerian Naira have depreciated considerably (as high as 30% since the beginning of the year), due to a rush towards risk aversion. But analysts say that worst might be over for Rand & expect it to rebound by the end of the year, which might present more opportunities for currency traders.
Many global forex brokers are now reporting as high as 200-400% increase in trading volume due to growth in currency speculation.
If you are a currency day trader focusing on speculation & short-term gains, this may be a good time to take advantage of the volatility.
FX pairs can be traded at regulated forex brokers or through an exchange like JSE, which offers it as Futures & Options derivative instrument.
For Commodity traders: Prices of commodities like gold and silver may rise as people look for a safe investment. Gold has been viewed in the past as a safe investment during uncertain times.
The price of WTI oil has fallen considerably from close to $60 at the start of the year to as low as $19 per barrel due to OPEC+ price wars due to supply agreement issues from the falling oil demand during this crisis. The oil price could rise in the short term if there is some deal to slash output, and in the long term when the demand for oil rises again once the global economies open up. Commodities including – Oil, Gold & Silver are mostly traded as derivatives at major exchanges like JSE or at CFD brokers.
Investing in derivatives like – Commodities & Forex may carry much higher risk and you should only invest or trade in such products if you are comfortable with the risks these instruments carry and understand the underlying trading fundamentals.
- Focus on Long-Term Goals
If you are investing in uncertain times, it is best to look at your long-term goals. Short term gains may be limited in a receding volatile market, but that doesn’t mean that your investments do not have long term potential.
Do not judge your investments by their current status since they may be undervalued or underperforming due to market turbulence. But at the same time, be wise to understand the risk of your investment & how does the current situation affect its long term outlook.
When seeking long-term growth, consider your investment strategy. Are you looking to make money from stock dividends in blue-chip high EPS companies? Are you looking to invest in high-growth companies that are poised for high valuations but are not necessarily concerned about short term profitability? Or do you want to make short term gains by speculating on the current volatility of the stock & other markets?
When deciding on your investments look at how they have performed in the last three to five years as this may give you a better idea of the kind of future performance you can expect. Check the 3-5 year CAGR (or the Compound Annual Growth Rate) of your investments.
Remember that the fundamentals of a good company with sound management do not change depending on short-term market volatility. You should rely on the fundamentals to make your investment choices.
A good investment strategy would be to invest in companies that are currently undervalued but have strong fundamentals and scope for growth.
- Don’t Rely on the Advice of “Experts” and Don’t Panic
Instead of relying on specific advice from experts on investment choices, you should seek to learn how to judge fundamentals and the technical aspects of trading. Solely investing based on recommendation or expert advice is notorious for being misleading and it is better to rely on your own informed judgment.
Due to uncertainty in the market, the valuations and prices of several investments are abnormal. Do not buy into the short-lived panic and exercise cool judgment to make your decisions.
The current market volatility is an excellent opportunity for day traders, especially in currency markets. Also, if you are an equity investor, remember that strong fundamentals will win over short-term volatility in the long run.
- Conduct Proper Risk Management and Assessment
Every type of investment carries its own risk profile. Study the kinds of risk that are involved with each type of investment and assess the risk of your overall portfolio.
Remember, do not invest more money than you can afford to lose. Every investment carries a certain amount of risk and do not trust “guaranteed profits”. You should err on the side of caution and only make investments that you understand.
Investing in uncertain times may carry more risk but they also carry greater opportunity for better price discovery. There is a greater possibility of finding good long-term investments at lower prices.
Instead of staying off investments during such times, it is advisable to spend more time studying the markets and investing cautiously.
Content Supplied by Forex Brokers SA
Cryptocurrency for Africans
George Gordon is on a quest to revolutionize the financial system. The director of Africa Master Blockchain Company talks digital currencies, blind risks and board games.
What is this new African cryptocurrency you are offering?
Where the majority of current digital currencies are based on speculative models, AfriUnion Coin (AUC) and the AfriNational Tokens (ANT)are designed for a transactional purpose allowing international payments, remittances, foreign direct investment as well as day-to-day transactions at local retail stores and other outlets. While the option for speculative trade is available with AUC, the focus is not around that.
Each African country will have a specially-designed ANT which will allow users to pay for goods and services and bills easily through completely digital means without requiring any bank account. AUC and ANT will be fully interchangeable to one another and there will be no fees for the user.
It’s the natural next step for digital finance from mobile banking which most Africans are accustomed to. The ability to freely have the power to send and receive money locally and internationally will allow the freedom of choice and spending power many Africans don’t have currently.
What is your own investment philosophy?
I am a gambler! I believe in taking risks and putting things on the line. That being said, blind risk or whimsical guesses don’t get you very far. Always acquire enough information to understand to a reasonable level what the thing you are planning on investing is or how it works and then trust your instinct and gut feel.
What advice would you give entrepreneurs wanting to invest in blockchain?
First, do some research in terms of what the blockchain technology is being applied for or created in terms of its application to an industry or project. Thereafter, check the white paper for the design of the platform as well as its functionality and applicability to what it is trying to achieve. If it aligns with your personal investment rules, then go for it,however, remember that blockchain is continuously evolving and thus you need to explore outside the usual and standard.
First cash-less, now card-less. What is the future of online banking?
If we are looking into what is currently science fiction, I would say the future is digital contact lenses that will be able to connect you to all your social media accounts, internet, news as well as make payments by just looking at QR codes or specialized barcodes to approve and accept payments.
Now, realistically we are not far off from such innovation and technology, but for the time being, I think the next step is scanning of QR codes at retailers and having the transaction automated from your wallet to the retailers digitally.
What is your most prized investment and why?
My mind. I believe that the work I have put into developing my mind, and continue to do so every day, is the number one investment that I have ever done. It allows me to look at things in a unique perspective as well as provides me with the tools to push boundaries and create new opportunities.
Money, success, fame? Which is most important to you?
I would have to say success… because it is most likely going to bring the other two as well, right? But success in the form of starting something and letting it grow and succeed and knowing that something new exists because of your efforts.
What do you spend your money on mostly?
Board games. I love board games and believe it’s a fantastic way to expand your mind as well as have fun with friends.
King Price CEO On Why He Invested On Insurance
King Price Insurance’s CEO Gideon Galloway, who built an insurance company in South Africa worth over $226 million in six years, talks investments, industry trends and how self-driving cars will change the entire car insurance landscape.
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