Fi­nan­cial rot starts set­ting in ...

The coun­try has reached the point where it’s time to panic.

The Citizen (Gauteng) - - FRONT PAGE - Mag­nus Heystek is Bren­thurst Wealth’s in­vest­ment strate­gist Mag­nus Heystek

Coun­try has reached the point where it’s time to panic, but for many peo­ple it’s game over.

For years I’ve warned about a con­flu­ence of fi­nan­cial and po­lit­i­cal un­der­cur­rents which, to me, had some sin­is­ter po­ten­tial out­comes. This year, S&P Global Rat­ings and Fitch have down­graded us to junk, Pravin Gord­han was fired as fi­nance min­is­ter, the econ­omy en­dured two quar­ters of neg­a­tive growth, un­em­ploy­ment is at record lev­els and Bloomberg has de­scribed us as the world’s third-most mis­er­able coun­try.

Busi­ness con­fi­dence is at record-low, 1985 lev­els. While the in­dus­tri­alised world is hav­ing a co­or­di­nated global ex­pan­sion, our in­dus­trial ca­pac­ity is shrink­ing.

Over R247 bil­lion has left our eq­uity mar­ket over 18 months and the JSE has been the worst-per­form­ing ma­jor stock mar­ket against all the world’s ma­jor in­vest­ment re­gions.

The bud­get short­fall is ex­pected to be over R50 bil­lion this year and will rise to a to­tal of R200 bil­lion over three years. Where will that money come from?

Al­most every day there are more rev­e­la­tions about the ex­tent of the abuse we’ve been tak­ing as law-abid­ing cit­i­zens, e.g. state cap­ture and loot­ing, thiev­ing by the Zup­tas and their cronies.

It all started with the ANC cadre de­ploy­ment many years ago. The cir­cle is now com­plete. Read the his­tory of any for­merly glo­ri­ous em­pire, be it the Ro­mans, Greeks, Dutch, Span­ish, even the French and Bri­tish. A so­ci­ety col­lapses when the money runs out, ei­ther through ill-timed wars or sim­ple loot­ing of the fis­cus.

And gov­ern­ment is sur­prised that tax moral­ity is slowly im­plod­ing? The tax re­volt will take many forms, some covert (cheat­ing and avoid­ing taxes), oth­ers via overt means, e.g. re­duc­ing liv­ing an­nu­ity draw­downs to re­duce the tax to be paid, or re­con­sid­er­ing buy­ing ex­pen­sive homes to avoid as­tro­nom­i­cal trans­fer fees.

What would this do to gov­ern­ment’s rev­enue col­lec­tion tar­gets?

The col­lapse of our so­ci­ety will start in our very small tax base. You can­not have a sit­u­a­tion in a coun­try of 55 mil­lion peo­ple where ap­prox­i­mately 60% of all per­sonal taxes are paid by just over one mil­lion tax­pay­ers.

The fi­nan­cial rot is per­me­at­ing al­most every cor­ner of so­ci­ety and af­fect­ing our tra­di­tional as­set classes, e.g. prop­erty, listed shares, farms, even busi­nesses.

At an in­vest­ment sem­i­nar two weeks ago, some of SA’s top fund man­agers pre­sented to about 200 fi­nan­cial ad­vi­sors. It was telling how dif­fer­ent speak­ers an­swered the ques­tion about how much money they’d take off­shore if they had com­plete free­dom to do so.

The crux of the sem­i­nar was that the abil­ity to have off­shore ex­po­sure saved the ba­con for mil­lions of SA savers, in­vestors and pen­sion­ers. No other as­set class avail­able to lo­cal in­vestors has man­aged to keep pace with in­fla­tion over the last cou­ple of years. Be thank­ful for the free­dom fund man­agers have had to in­vest vary­ing de­grees of their port­fo­lios into off­shore mar­kets.

SA is head­ing into a fi­nan­cial storm. In the short term we’ll be con­fronted with the pos­si­bil­ity of Moody’s down­grad­ing SA to junk, join­ing the other two large agen­cies.

SA’s lo­cal debt is cur­rently in­cluded in the World Gov­ern­ment Bond In­dex (WGBI). A down­grade means up to R140 bil­lion will have to leave SA. Ig­nore this at your peril.

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