·
Ten stocks for uncertain times
·
IMF Warns on fiscal cliff, euro crisis
·
South African economic outlook deteriorating rapidly…
So what is there to do in these times but ride out
this uncertainty? The only certainty that we can bank on is that in the end
everything will be alright. Make sure that your portfolio and needs are closely
aligned. It is a disparity between these two distinct variables that will cause
a loss or diminish the returns of your investment.
Low lights to
be aware of
Uncertainty within our markets affects the way
foreigners perceive us. We rely heavily on foreign inflows of money into SA
stocks, bonds and other investments to balance our (SA’s) books. Without these
inflows our deficit has to be funded through borrowing money. Governments in
developed countries are excellent at this – borrow now to pay later when things
turn around. What if they don’t? Perception of our markets has been negatively
affected due to the strikes and political uncertainty which has been mostly due
to ANC’s Mangaung conference. Foreigners have dis invested approx. R 4bn from
SA. Taking profits they have made over the past few years. Moodys recently
downgraded our credit rating which also had overseas investors raising
concerns. The value of the Rand has also weakened due to these outflows which
makes investing in our country more expensive.
There is a sinister element in these illegal and
wildcat strikes that does concern me. Our government must get a grip on this
quickly in order to restore confidence. Once these political manoeuvrings
within our ruling elite have played themselves out, it should be business as
usual. I do hope, however, that the status quo within our country that exists
between elective conferences, will not, in the broader sense, carry forward. We
really need our government to start performing and encouraging our country to
become the African light that can lead us to prosperity.
Another concern is still Europe as it is in
recession and they are one of our largest trading partners. Greece’s economy,
in particular, will have contracted 25% by the time this recession ends. They
have to accept the austerity but yet they protest and fight it. If they had
just paid their taxes and balanced their books in the first place all would
have been fine.
Why are rates
so low?
Rates are low worldwide; in most cases returns on
cash are actually negative when you take inflation into account. Bond and cash
yields are being kept artificially low so that Governments and the public can
afford their debt. Fiscal policy is hamstrung as Governments are unable to
increase yields to get their economies moving. Inflation since 1994 has been
around 2% in the developed markets. If they were able to increase costs this
could spur the economy on as Corporations make more money. Inflation is not
necessarily a bad thing. We are caught in this ‘bubble’ of uncertainty. If
rates were to increase some governments might not be able to service their
debts to other countries. Look at Italy and Greece. Yields on US Gov bonds are
the lowest they have been in over 500 years of data! 500 years…
A conspiracy that I have on this is actually my
largest concern. One day some, if not all, of this debt will need to be written
off. This is especially true for the US, as their debt is just too huge to ever
be paid back. Which company or government will be willing to take that write
off? You should know that China is still the largest owner of US paper.
And now the
down-low
As I mentioned in my opening few paragraphs - ensure
that your needs and required returns are aligned. There are many things out
there that could affect ours and the world’s economy quite badly. Be aware and
make sure your portfolio is positioned appropriately. In my ‘glass-half-full’
world: everything should be alright. I just wish everyone else would see it
that way as well and then this uncertainty would fade and things would become
less volatile.
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