As Judge Bernard Ngoepe so pertinently stated, a Tax revolt isn’t unlikely, especially if tax payers are forced into higher tax brackets and government doesn’t spend that tax money prudently. The South African government is losing Billions in tax revenue due to aggressive tax evasion schemes and money leaving our shores. Many say, “Do you blame them?”
The current political climate (unsure at its best), a huge deficit, high unemployment rates, a slow GDP growth, more dependence on social grants and inflation still above the 5% mark are all signs of tough times which we South Africans are facing. It really goes to show how politics can affect a country’s morale and economic stability…
But as always, South Africans are a hardened bunch, never to back down from any challenge! The national Treasure is putting some high hopes on the recovery of per Capita Income growth which will aid fiscal sustainability – however this might still take some time while South Africans get their act together and that good old fashioned tenacity starts kicking in again.
So in all this current negative sentiment, what is looking positive?
One would think with all this Political instability and surprises we have had that the Rand would have really taken a knock, however it has remained quite stable around the R13/ Dollar mark. And it is looking slightly better going forward into 2018 and even 2019 according to the *Economy Forecast Agency. According to them, approaching the 2017 December holiday season, we can expect a Rand trading on average between R12.942 in October, R12,655 in November and R12.779 in December, just in time for holiday imports with a Rand having gained some buying power. For investing offshore it is good news too, as you will see below.
Approaching more mid to long term (2020-2021) *The Economy Forecast Agency predicts that we might see the Rand slip close to the R15.3 per Dollar mark on average. This is where the direct offshore component should pay off. Apart from potential growth from the chosen underlying funds, just the difference in currency will already give you a boost on your investments.
Let’s say you have, for example, invested $10,000 at R12.779 to the Dollar = R127,790 as at November 2017 (not taking into account any underlying fund performance) and the Rand drops to R15.3 /Dollar as at June 2021 according to their forecasting, the investment value would increase to R153,000.00. That’s a R25,210.00 gain without any fund growth. Add to that the potential underlying fund performance (depending on the chosen funds), this could potentially be a much better performing investment than a local investment, should the Rand devalue.
I am a firm believer that in the best of times and the worst of times there are always opportunities that exist to make money. Sometimes there might be a dip and sometimes a positive surge, but overall I am an optimist believing in opportunities that exist within any economic climate. I never listen to complainers, nor do I listen to negative talk as everything in life has its cycles. As most Fund Managers and Advisors do, we look for those opportunities, for where we can find value no matter what the economic climate.
So if I may, looking for value in our current market need not be a headache, you have fund managers who can do that for you and Advisors to point you in the right direction. The art of choosing funds in any climate condition is to try and see where one can get value on the investment relative to risk.
Finding a happy balance might be slightly tricky, therefore we never choose just one fund manager. I mean, can one fund get it right all the time, every time? We have to have a broader view when we choose fund managers and decide on local or offshore components to your investment. We look at house views, fundamentals, historic performances, fund manager’s historic behaviours, fund ratings, fund mandates, the current economic climate which includes interest rates, inflation, GDP forecasting, political and Socio political issues and the list goes on. Armed with all this information and a little caution, we can advise a client on a portfolio plan.
*Pls note that the Rand/Dollar rates change daily and can be viewed by visiting their link on https://longforecast.com/dollar-to-rand-forecast-2017-2018-2019-2020-2021-usd-to-zar
Yours in Finance,
Independent Financial Advisor
084 584 1158