Are our leaders able to weather global volatility?

Strong and effective leadership is something that is a necessity now in SA. You read daily about how our leaders call for one thing but their actions convey a different message.  Most of us are not easily fooled and can see through lies, even if this takes a while. It is human nature to be sceptical and when you’ve been waiting for an RDP house for over 20 years, your scepticism is well founded.

I’m putting this out there at the start as we must realise one thing, although this is a big issue in our country, and one that we must sort out for our own good. We are at the bottom of a massive continent and relatively isolated from the rest of the world, figuratively. This tends to make us look inward and the world out there that doesn’t take much notice. It continues no matter what happens at our ANC’s NGC and neither do they care what Kohler-Barnard posted on her FB page. We, as South Africans, get caught up in what happens locally and forget that what happens globally has a much bigger impact on our markets then any internal force could ever hope to achieve.

This brings me to the volatility in our local bourse over the last 12 months – shown on the graph below: 

Although it is positive, within this time we have bounced up 14 % & then down the same amount. We are still down from that high and all of this volatility has very little to do with us. It is driven mostly by what has happened in Chinese stock markets and uncertainty over what the US Federal Reserve (Fed) was going to do around its interest rates.

The Fed decided on 17^th Sept 2015 to keep rates on hold. The build up to this rates decision caused much consternation because at some point they will have to increase. Prevailing opinions are that when this happens it will negatively affect global markets and especially Emerging Markets ("EM’s" which includes us). Mostly due to the fact that a lot of EM’s government & most Corporate (private) debt is held or denominated in US dollars. So an increase of even 0.25% will have a dramatic effect on our debt payments,  account deficits and in the end our markets. Here is a graph here of what Emerging market debt looks like and what it is made up of (including ths changes in it).  

You see the world is still swimming with cheap money and when we all have to pay it back is when real pain will set in. We will all have to "pay back the money". 

So it’s a double whammy. Chinese markets took a massive tumble, from a high in May 2015 their market is down around 26 % (to just last month). That is almost two thirds of what our market lost in the 2008 crash. The two largest economies on the planet have a huge impact on the way the world sees its finances. With China beginning to surpassing the US as a main trading partner for many countries what happens there does have a direct impact. Just today there was results that their imports are down over 17.7 % month-on-month (14.3 % last month).

So although things are rough, what we need is perspective when it comes to ones financial planning. Always consider what is happening in our world as well as what is happening locally. That way we will gain a better perspective in that our local economy, although struggling, is no different to all emerging markets. Remember to keep your end goal in mind when investing and if that end goal is 3 – 5 years away, I would advise caution in your asset allocation.

So will our leadership be able to weather their own and this global volatility? With local government elections coming up soon things will get interesting before that but in the end it is our national elections where things really count. If our government doesn't start taking leadership seriously we may be in for many more years of sluggish growth. I say this in reference to the appointment of the new Mining minister, who has no qualifications in this arena. He has also many questions over his head that haven't been cleared up. This when our mining industry is in the worst state ever. I feel that this shows a lack of understanding of how a strong and capable leader can guide a person, a company and even a country in the direction it requires to grow. We need qualified and knowledgeable leaders in the appropriate positions urgently.