MASTERS OF THEIR CRAFT REFINE THEIR SKILLS OVER TIME

There are no shortcuts to wealth creation. It’s about doing the right things at the right times, over and over again. We don’t believe in cutting corners or compromising on our values for short term gains.

Apr 18, 2017

Fairtree News- April

Where are we going?

Where are we going? This has been the biggest question of all ages – has it not? Or to put it otherwise, if someone asks you where you would like to go, would you only know you are there the moment when you arrive?

Here is an even bigger question: How much is enough to get there? How much would be enough to give our kids the best that money can buy…?

The past few months we have repeatedly been faced with these questions, especially upon seeing social media run like wildfire regarding our country, when reading newspapers shouting about bad politics and corruption, while watching on television how protests gather momentum across South Africa and thousands of protestors descend on the Union Buildings.

#SAunites in nationwide protests…To top it all, President Zuma announced a cabinet reshuffle, replacing Finance Minister Gordhan with the Minister of Home Affairs, Malusi Gigaba, while Deputy Finance Minister Jonas was replaced by Sfiso Buthelezi. In total, five ministers were removed and six new deputy ministers appointed.

When you take a step back and try to take a 24 000 foot view of what has happened over the past 24 months, with the final blow that we are being downgraded by the credit rating agencies to what is called “junk status”, one can ask yourself: Where are we going?

Before the political events of the last three weeks, it could be said that commodity prices were stronger, with a tendency towards stronger emerging market currencies (such as the ZAR), which in turn would lower inflation and result in lower interest rates over time. All positive prospects for the South African economy and the term “green shoots” where mentioned when the South African macro-economic conditions were discussed.

Economic data across the globe also point to an ongoing acceleration of growth. In the euro zone, the PMI indices are at peak levels and in the US, manufacturing strengthened early in the year as the adverse impact stemming from the dollar and oil is fading. In emerging markets the message is the same: the outlook is favourable. The rise in commodities prices sparked only a brief rebound in inflation, but vigorous growth will nurture a more lasting increase. The speed at which this occurs will, however, depend on the state of the labour market, which explains why the US is further along this process than other countries.

All else being equal, this upbeat trend is set to continue, unless political risks – whether external or internal – prevail. Emerging markets will have to face a more restrictive US monetary policy as well as the risk that Donald Trump will implement protectionist measures and emerging markets will have to deal with some internal risks in order to get through the next quarter.

At home we will need to deal with the uncertain political environment as consumers and businesses will need to realise that this is business as usual. We need to grind through towards December 2017 and find out who the new president of the ruling party will be. At Christmas time 2017 we may be able to look forward to 2018 with a greater anticipation for a healthier political environment and a more stable economy for everybody.

Are we ready to handle the current uncertainty? Probably not. Will we ever be ready? No. But are we willing to try and fight to get through this? Yes. As South Africans (or “Saffers”, as we are often called) we have always been a nation that knows how stand up and fight back. Consider the way the Springboks play New Zealand – they have the skill and we have the heart. Our cricket team was down and out about a year ago and nobody gave them much of a chance – until Faf du Plessis took over the leadership and positioned the same team into world class. Lewis Pugh is world-renowned for swimming in below zero temperatures as an ocean advocate, a maritime lawyer and a pioneer swimmer. For years, he has been fighting for what he believes is right.

We believe 2017 marks the start of a new macro and investment environment after seven years of post-financial crisis economic disappointments. Deflation is giving way to reflation and to the ‘sweet spot’ conditions necessary to support an increase in our risk appetite. We are positioning for steeper yield curves, expecting better returns in cyclical value sectors of the equity market. We see opportunities and we continually reassess risks and potential returns in the changing circumstances, making appropriate portfolio changes over time.

People have a lot to say and much to protest about. All sorts of things are generally said: “You cannot go wrong with wearing Black…” or “Just wait till you have kids – a two-year age gap is perfect.” When it comes to investing, they have even more to say: “I’ve got a hot tip, a new thing…” or “We have to be patient…” They also say: “Trust me, you cannot go wrong…” But what if it does?

Then what do we say… We don’t say. We do.

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