Serala Sentinel Ed 1 2017 - What a crazy year 2016 was!

So what a year 2016 was? So many changes over such a short space of time. Starting with a personal milestone where I I welcomed my second child, Aurora, into this world. Then moving my business in June to Serala. It seems as if this year was meant for Firsts, and many of them both locally and globally. Dominated at year end by US Elections results bringing that hairdo to center stage in world politics.

The First that still has everyone perplexed and uncertain has to be Trump winning the US Elections. He becomes our first Reality TV star to be elected as a president. What started this was BREXIT which, like the US elections, was not called by any polls done before these events. You can call it the year of the underdogs and in more ways than one. It was public underdogs that voted for these two things. When you have a large populace that are fearful for their future and are struggling to find work, they will vote for someone or something that they think will deliver them from this. Some have called this ‘an angry revolt of yesterday’s people’. In both instances (Trump & Brexit), it is clear that it was an older, conservative, voting block that swayed these results. Not enough younger, global, voters came out to swing this back. There was very little in both votes (in terms of numbers) and in the USA Hillary did have the popular vote (just not the College).

Politicians will always use a situation to their own advantage and this has been proven in not only these cases above but in our own country. Who would have thought a couple years back that the Democratic Alliance would now govern four Metro’s in South Africa? Add this to all the machinations around our President and a worsening economic outlook and things are looking decidedly tough.

This has been brought to bear through our stock market. All Share index returns year on year (30 November 2016) was -0.1 %. In fact if you look at all asset class returns for this period – none have provided double figure returns at all. If you roll that forward a month to end December we have only just made a marginal positive return.
(Figure courtesy of Investec Asset Management Updates)

So you can see that 2016 was a tough one but there have been some returns depending on whether you have taken a view into certain asset classes (Resources being one).

So then what does 2017 have in store for us? There are some that think there will be a bullish start to Trump’s presidency. There are some early signs that US markets have picked up since his election. It’s his capitalistic, market friendly policies that have brought this about. Maybe that’s what US needs - some introspection? Either way this does have some negative consequences especially as the world needs a strong, spending US consumer. It may also fire up underlying nationalistic feelings in other countries around the world. And within Europe this is already being felt and acted upon. Whether this could fuel more divorces from within this common-money area is yet to be seen. As Europe is an important trading partner for SA this is important for us to watch. So keep an eye on what is happening there as our largest export partner needs to keep ticking over and if it doesn’t it will mean another tough year for us.

What must SA do to mitigate all of this?
Policy certainty is key. Government departments under the guide of our Finance Minister are beginning to show some turnaround in their finances. As the Government payroll is our largest expense, as a country, this is important. I, like most of you out there, are probably tired of our tax monies being squandered by high-flying Cadres lining theirs and their entourages pockets. One can call it tax-fatigue and if our ruling party doesn’t take this into account I am sure that their losses in local government elections will filter into National elections in 2019.


Our Judicial system is proving its mettle daily. I am confident that us being a quasi-Juristocracy country is a good thing. If our government is not willing to govern effectively, then our civil society organisations have every right to hold them to account through our courts. This is a vital aspect that must be considered in any analysis of our country. This independence of our Judiciary, coupled with vibrant, active and vocal civil society organisations, provides excellent balance to our corrupt and inept Government. The principle of accountability is proven daily through our courts. All one has to do is open up a newspaper on any day in SA and you will see this being trumpeted. A free press is also a powerful bulwark against large/overarching interests. A caveat to this is that press is also often playing a line so read/watch/listen widely. A range of views and opinions allows one to truly develop a view on what is happening out there.


There is also reason to be quietly confident about how our country can traverse uncertainty and threats when required. An example of this is how Government, Labour and Business worked together to ensure that we put on a pretty picture for these rating agencies that threaten our sovereign status regularly. Recently we have been able to fight off a downgrade. Whether we can do it again is another question but for now we have shown that with the right people in the right places we can overcome adverse global economic conditions.


So, yes, things are still going to be tough in 2017. Expect muted returns, if any, but good things are possible if we, as SA, can work together as a country. With this being Trump’s first year in power it will mean a lot of feeling out by these Global giants. What will Russia’s moves with Trump be? Will Japan be able to solve its ageing population crisis? And at home, will this strange marriage between the EFF & DA be able to navigate and rule in these key Metros. If they do, then it could mean great things for our economy as our public will finally gain confidence in Government institutions. Keep a close eye on what is happening in Europe, as above, they still are our largest trading partner.

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.