The A to Z of investments | Fin24
 
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The A to Z of investments

Dec 14 2018 16:22
Schalk Louw

A - ANC

2018 was a tough year for the ANC.

First, a changing of the guard at the beginning of the year, followed by land reform and constant corruption charges against prominent members of the party. 

One can only assume that, with the 2019 elections looming, things will escalate. 

B - Bitcoin

Unless something significant happens, I doubt bitcoin will appear in next year’s A-Z. Last year, I compared bitcoin to the tulip trade of the 1600s and it was not long before it suffered the same fate. 

After trading at levels of more than $19 000/bitcoin in 2017, it traded around $4?000 at the beginning of December.  

C - Cash

Money market rates were relatively stable during 2018. It ended 2017 at 6.73% and currently stands at 6.71%.  

D - Diversification

2018 reminded us yet again of the importance of a well-diversified portfolio. Investors had a tough time with both local and offshore shares, as well as property, while bonds remained reasonably stable with the SA All Bond Index showing 7.2% growth for 2018 up to 3 November.  

E - Eskom

Unfortunately, Eskom’s financial situation looks even darker than its power supply.

Profits decreased from R8.9bn in 2017 to R1bn in 2018 – a truly massive decline.

But that is not all. Its outstanding municipal debt increased by R3.4bn (25%) from March 2018 to September 2018.

F - Finance ministry

Malusi Gigaba kicked off 2018 as minister of finance, but was replaced by Nhlanhla Nene in February. However, Nene resigned in October after admitting to meeting with the Gupta family. 

The very experienced Tito Mboweni was appointed in his place and is now faced with the mammoth task of decreasing SA’s massive current account deficit as soon as possible.

G - Gordhan

What a year it has been for Pravin Gordhan. After being dismissed by Jacob Zuma in 2017, speculations were that he’d be reinstated as finance minister for the third time in 2018.

To the dismay of many, President Cyril Ramaphosa had a different idea and appointed him as minister of public enterprises.

Gordhan has managed to remove quite a few corrupt ministers and senior officials in a relatively short period. H House prices & propertiesHouse prices, along with the rest of the SA economy, had a relatively tough 2018. According to FNB, this segment grew by only 4.1% so far for 2018.

Listed properties performed poorly in what has to be one of its worst years to date, losing 24% of its value up to 3 December for 2018 so far.  

I - Inflation & economy

It seems as though our local inflation is relatively under control (at 5.1% year-on-year at the last announcement of CPI numbers).

From a local economic perspective, SA did not do much better than last year.

Although we managed to get out of the technical recession in the third quarter with 2.2% quarter-to-quarter growth, our year-on-year growth of 1% is not nearly enough to generate enough jobs.

It is not the kind of problem that can be solved over the short term, seeing that the IMF recently lowered our growth forecast for 2019 from 1.7% to 1.4%.  

J - JSE

The JSE did not have a great year.

The FTSE/JSE All Share Index declined by more than 10% up to 3 December 2018 and the big shots suffered the hardest blows. From the list of Top40 shares, seven declined by more than 25% and five declined by more than 40%. 

K - Know your limits

Although debt levels are still much higher than they were 10, 20 or even 30 years ago, debt as a percentage of income has seen a slight drop from ?73% at the end of 2017 to levels of around 71% currently. Let’s hope this positive trend continues into 2019.

With the economy still under pressure, saving still not a priority for many, and interest rates still low, a comfortable retirement remains a huge concern for many. 

L - Long bonds

Long bonds (12 years plus) kicked 2018 off at 9.23% and ended at around 8.6% at the end of April. Shortly after, we saw a weakening in the rand and an interest rate hike in November, which saw us back at levels of around 9.43%. 

M - Markets

Developed countries initially delivered fairly good growth, but started struggling towards the end of 2018.

The FTSE 100 performed the worst (-4.3%) with Brexit now gaining momentum. The Japanese Nikkei 225 was also under pressure and stood at -0.8% growth at early December.

The MSCI World ACWI Index was trading 0.9% lower for 2018.

The S&P500 also suffered a severe setback, but was still trading 6.6% higher for 2018. 

N - Naspers

Naspers* makes up nearly 20% of our stock exchange. At one point in 2017, this company showed a whopping 100% growth and ended 2017 at a stunning 75% growth.

This year, however, things changed. Naspers has seen a 20% decline year-to-date.  

O - Oil & ore

Brent Crude oil had a very interesting year.

It kicked off the year at $66.50/barrel, then shot up to above $85/barrel, only to fall back to $59 by early December.

Iron ore was still under pressure during 2018 with an approximate 8% decline in dollar terms. 

P - Prime rate

We started 2018 with a prime rate of 10.25%, and we’ll most probably end 2018 at 10.25%. We received a drop of 0.25% in March, only to see the rate increase by that very 0.25% again in November. 

Q - Quantitative easing

With the US Federal Reserve’s first quantitative easing (QE) announced in November 2008, later followed by further QEs, it would appear as though QE has now officially stopped. 

R - Ramaphosa

At the end of 2017, it still looked as though Nkosazana Dlamini-Zuma stood the best chance of becoming the next ANC president and, ultimately, president of the country.

We all know that didn’t happen. Cyril Ramaphosa took the ANC leader crown and became SA president, following Jacob Zuma’s resignation.

It is still early days, but Ramaphosa has already made quite a deep impression. I’m sure that it is about to get even deeper as the 2019 general election approaches.

S - South African rand

The rand managed to strengthen very well after Cyril Ramaphosa’s appointment as president in December last year, closing at R12.37/$ for 2017.

Its good run continued into 2018 and in February, we saw the rand trade at levels of around R11.55/$. It was short-lived, with the rand weakening to levels of above R15.40/$ during September. Since then, it's managed to get back on track, recovering to around R14/$.

T - Trump

As always, Donald Trump definitely managed to pique public interest during 2018.

Whether you like him or hate him, he simply still cannot be ignored. 

U - Unsettled 

We have made several references to SA politics so far.

It does not matter what your political views are, everyone can agree that 2018 was quite eventful on the political front.

Things will get even more interesting in the run-up to the 2019 general election.  

V - Volatility

The SA Volatility Index was relatively stable in 2017, trading at an average of around 15%, but 2018, with all its uncertainty, definitely changed that.

Over the last two months of the year, we sat at around 20%, clearly showing that local shares are currently very volatile. 

W - World growth

SA’s economy struggled to grow, but in stark contrast, the US managed to do well with 3% growth, while Britain’s economy grew by 1.5%, China by 6.5% and Europe by 1.7%.  

X - X-factor

Unrest in the Middle East remains a concern. Add the US’s tense relationships with North Korea and China into the mix and those concerns will continue to mount. 

Y - Yuan (China)

Following the ShanghaiComp Index’s good performance in 2017, this year proved difficult for the index, along with those of other developing countries.

By early December, the index was negative by 20% year-to-date.

The yuan performed 5.5% weaker relative to the US dollar in 2018.  

Z - Zuma

Ramaphosa might have replaced Jacob Zuma as president, but that didn’t move him out of the spotlight. Facing countless charges, I believe we’ll still see a lot of Jacob Zuma in 2019.  

Schalk Louw is a portfolio manager at PSG Wealth.

*finweek is a publication of Media24, a subsidiary of Naspers.

This article originally appeared in the 20 December edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

investments  |  2018  |  economy
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