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A Fin24 user is worried about what to do with his investments to withstand the shock should SA enter a recession or the JSE fall sharply. He writes:
I have about R3.5m invested in balanced portfolios unit trusts, plus another R350 000 in cash in a money market account, ready to be invested.
With the current talks about possible market corrections and recession I am very hesitant to invest my cash right now.
If the South African economy enters a recession and the JSE falls sharply, what asset classes should better withstand the shock?
Are balanced portfolios the place to be?
Daryl Ducasse of Merkurius Capital Solutions, responds:
In my humble opinion, you have every reason to be concerned about the state of the investing environment.
Investors with a higher risk appetite are easily able to be opportunistic in times of volatility. Then again, they are likely coming off a high net wealth base or are experienced traders who know how to short the market - equities and forex included.
To me, the JSE and other markets are somewhat over-heated. There is no real explanation for the growth in the indices since the calamitous capital markets meltdown in 2008/9.
Nothing of real substance (growth) is driving the rise in the All-share index. I recall a lovely phrase that I could liken to current markets: “Irrational exuberance”.
What the exuberance is about, I fail to see - not negative or pessimistic, but maybe just the absence of facts to support the market hype?
This is not the scenario I would imagine this Fin24 user is interested in.
There are more factors, however:
- The purchasing (investing) power of the rand has diminished over time;
- We are approaching a time when the SA Reserve Bank (Sarb) may have to seriously consider raising interest rates to avert future crises;
- Our economic growth has become stagnant and our balance of payments deteriorates daily;
- The political environment is becoming more unstable, with parliament unable to curtail its’ own house. This has the knock-on effect of causing investor concern;
Living in a corrupt civil society is unappealing to any investor and the statements that I will make below are based purely on personal strategy and are not necessarily a recommendation:
- Cardinal Petroleum Holdings is about to embark on a listing on the Stock Exchange of Mauritius;
- The underlying assets and operations are based on revenues derived from petrochemical sales, underpinned with the security of real estate upon which the operations trade.
The listing in Mauritius is favourable because:
- Investors can efficiently utilise their offshore allowance;
- The investment would be in an offshore, dollar-based investment;
- The exchange rate is in favour of the rand (for the time being), at nearly MUR3 to R1;
- The economy is thriving, with much growth to come for the next two decades;
- Their balance of payments is healthy;
- They have a low unemployment rate;
- There is little to no industrial action (strike action);
- Their political environment is stable;
- Their tax regime is absolutely desirable, at 3% personal and 15% corporate rates;
- It is not the target of militant regimes;
- It has a temperate climate, bringing the possibility of residence status to a point of necessary consideration.
Therefore, if it were me (and yes, this is actual, as we are pursuing exactly what is set out, for the exact reasons above), I would give some serious consideration to the offering of an offshore, dollar-based product that includes the broader elements set out above.
By contrast, the UK and the US enjoy low interest rate environments, but their returns are also lower.
We are also so much more prejudiced when it comes to our exchange rate, that any basket of funds that is seemingly substantial in SA terms, is nothing more than petty cash once converted.
In addition, those two countries, amongst others, are the very definite targets of militants.
Trusting this will be seen as a fair opinion.
- Fin24
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