In the most turbulent year in living memory, the news is not all bad
Although 2020, the year of Covid-19, has been gruelling for local and global investors, there are glimmers of hope.
Steven Nathan, CEO of 10X Investments, said that despite SA’s underlying threats of further pandemic-caused restrictions, including more national lockdowns and trading restrictions, his investment outlook is positive, even though activities and product bans, including those on tobacco and alcohol, have robbed the country of billions in lost taxes and millions of jobs.
“It is important to see that, even in this tough economic environment, it is not all bad news. Governments around the world are pouring a lot of money into their economies to stimulate growth, which could be positive for commodity and resource prices, where SA would be a beneficiary.”
Nathan said despite world markets plummeting by 30% in March, by June the majority, including SA, had significantly recovered.
“In addition, local consumers have benefited through falling oil prices and the repo rate is slashed to near record levels. So far 2020 has been the most turbulent and unpredictable year in living memory and investors are living on the edge.
“The rand shed 19% in the first half of the year, which is bad news for imports and overseas travel, but it does make exports attractive, which in turn supports local industry.”
While the rand had sold off significantly over the last six months reflecting a bleak macro-economic outlook, Nathan said the currency’s poor performance was in line with other emerging markets.
Brazil was down 26%, Mexico down 18%, Argentina down 15%, and Turkey and Russia down 13% in the year to June 30.
“The currency is not exclusively an SA bad news story,” he said. “Despite all the challenges in the country, what happens to local financial markets is largely out of our control. It is determined by global sentiment towards all emerging markets. At times of crisis, uncertainty and poor economic growth, investors tend to flee emerging markets.”
Another positive is the soft inflationary environment, with the May consumer price index at 2.1%. “This has provided scope for the reserve bank to aggressively cut the repo rate by a cumulative 3% to 3.5%, its lowest level in almost 50 years.”
Nathan, the founder of 10X, is what he terms a “disruptive asset manager”. He believes that investments should be done on the strength of tracking indexes, rather than the stock picking preferences of fund managers.
“The portfolio performance in the first half of 2020 has laid bare active fund managers’ claims that they would be able to protect investors in times of market volatility.
“In March, markets around the world fell by 30%. It didn’t matter whether you were in the US market or in SA, markets shed a third of their value, sometimes a little bit more. The Johannesburg Stock Exchange is down about 3%. In dollar terms, the US is down 2%, developed markets overall are down about 5% and emerging markets are down about 10%.
“When the markets fell substantially in March, active fund managers had the opportunity to live up their promise of being able to see when markets were crashing and protect their clients. But that didn’t happen.”
The rand shed 19% in the first half of the year, which is bad news for imports and overseas travel, but it does make exports attractive, which in turn supports local industry