Some say it’s an upside down world with inflation and interest rates at record lows. Markets are reacting differently from expected, and countries such as China and Europe are struggling. But how is the United States doing? Have they recovered from the recession? And South Africa—how is load shedding and the weak Rand affecting our economy and stock market?
The United States has managed to climb out of their economic slump and they have seen a recovery in their employment figures, decline in unemployment and a rise in US wages. The Fed is likely to raise interest rates, some say in September. It will be interesting to see the market’s reaction to the interest rate hike.
Europe has implemented Quantitative Easing and, as a result, the Euro depreciated, which is good for inflation and manufacturing as all goods are now 20% cheaper, encouraging more competition. First quarter 2015 saw the best numbers coming from Europe and we can expect good growth in 2015. Europe is also stricter with Greece and less inclined to compromise, and unemployment is down in Germany—all boding well for a good 2015 for Europe.
China continues to slow down and growth is not on the cards in the near future. Policymakers are responding in measured steps as they have a long way to go before things are dire. Unfortunately it does mean bad news for commodity prices in the short term.
South Africa is still battling with high crime, high debt levels, low GDP and a very worrying situation at Eskom. The lack of urgency to get Eskom back up and running is very concerning as no power means no work, which puts pressure on the production of goods, unemployment numbers, GDP and debt levels. We need uninterrupted power to sustain our current low GDP levels and, in order to grow GDP, we need more production and more growth, not less power and less productivity.
The first few months of 2015 saw strong growth on our stock market as foreigners continued to buy South African shares. With low interest rates, foreigners have continued to find value in South Africa so that the market is now 65% owned by foreigners. Despite the strong numbers we still caution not to have all your money invested in the local stock exchange as PE values are high and the fundamentals indicate that it will not last forever. Maybe we have seen the start of the decline with negative numbers in May and the start of June.
Now more than ever it is best to be diversified—to be invested in cash, bonds, equity and property both offshore and local. Many asset managers with local equities are invested in companies that have offshore and local holdings, building robustness in their shares. As an investor you can invest offshore in two ways: either directly or with asset swap. In both cases you can invest in unit trusts on any LISP (Linked Investment Service Provider). In the case of asset swap you are buying offshore unit trusts held locally. If you wish to invest directly offshore you can use your offshore allowance. Both are very easy, and relatively simple processes.
It is good news that the US, Europe and the UK are all in various stages of recovery. It is also great for investors because investing offshore is a relatively simple process as Government has encouraged open borders for investments. Diversify and do not put all your investment eggs in one basket.