Rising inflation, interest rates and falling confidence…
Seems to be a worldwide phenomenon currently. If you have a gander through media lately it all seems to point to a world that has lost all confidence. Without much direction it appears that we are still wondering in which direction to head? Inflation has been on the up since the lows of COVID and along with it interest rates have been hiked to try and bring this under control. Except for Turkey, who’s Government is determined to burn through its reserves to prop up its economy while keeping interest rates low.
What will be the outcome, we wait and see. Turkey’s currency has been seriously devalued due to this and it will be interesting to see how this plays out. (See graph lower down showing EM Currencies vs us $)
In SA we are battling a lot of challenges none more then the looming threat of a blackout while daily loadshedding hampers our economy’s ability to grow. We must take this threat seriously and make plans to protect ourselves and our assets from this possibility.
Perspective Advisory will be hosting a talk later this month (22nd June) to engage on insuring your Solar plant as well as discussing impacts of risks on your property and assets due to blackouts. To emphasise the importance of listening in: There is a risk that should your home suffer damage due to a blackout & power surges thereafter, your insurance may not cover this loss. So this is important that we all take heed of this.
Register for our Insure Online Session – All about Power
In my last post on LinkedIn – reference below – I was scathing in that I feel our insurance industry should stand with us and not against us in these fundamental risks we face as ordinary South Africans. I understand they may incur losses but surely they would buy loyalty and support if they were to not incur these exclusions?
Then you have a global world that is fighting for stability as well. USA officials and Corporates are trying to mend relationships with their Chinese trading partners and counterparts. Russia is having to result to mercenaries to fight their war on Ukraine. This proxy war against Russia by NATO and their partners is a true test for political will to engage in de-escalation. After 18 months we seem no closer and with wars on African soil in Sudan and other conflicts worldwide, being in SA doesn’t, in my eyes, seem to be a bad place to be. Even with our challenges as they stand.
Noting that China doesn’t like dissent and clamped hard on any June 4 protests in Hong Kong. You are not even allowed to celebrate your beliefs in that country. We take that for granted in SA and many countries worldwide, something to be grateful for. Let’s not forget the Ugandan anti-LGBTQ laws that have been legalised. Terrifying that one could be jailed for just being accused of being Gay or having a sexual orientation that doesn’t fit in with their belief or paradigm. Once again, I am grateful being in SA and also check out how Target, among other US-based company’s, have been hammered for encouraging acceptance. Very polarised world nowadays.
Then we can take a view on how the US nearly defaulted on its debt again. Noting that their debt to GDP ratio is 130 % (compared to SA at 70 – 80%) and many commentators are, once again, stating that the death of the Dollar is inevitable. I find it How absurd that we as SA are Greylisted for apparent lack of policy but the US can just keep raising its debt ceiling and still retain their debt ratings. Along with how the UK laundered Russian and European money for years without sanction. There is no such thing as fairness in global politics and we have to remember that we are an emerging economy with very little financial clout globally.
Let’s hope our officials can get us off this Greylisting within 24 months otherwise it will add to our financial challenges locally.
Back to inflation and how stubborn it has been in the US and also locally. It seems European central banks have it under control, in that it appears to be falling but the ECB is still aiming to lower this through increased rates. This is a true test for a world that as been awash with cheap money for years. The fallout from this may be more severe then is being forecast and recessionary fears in the US are real.
In SA you have seen your debt payments, from the low of 7 % in 2020 to 11,75 % currently, increase by just under 40 %. This is massive for our heavily-indebted consumers but great for our retirees who are living on their cash investments. This will stay around for a while and if you are looking to buy property then note you may benefit when rates turn the other way. This is, because, as rates pull back your payments will decrease and provide disposable income. What you do with that is up to you but paying of other debt or putting more into your bond will be your best bet.
So closing off on this is to just remind us that times are tough locally and predicting to be globally as well. Returns as such will continue to lag the rest of our world. Diversifying your investments, especially as South Africans, is vital. You can and will decrease your risk by increasing your offshore exposure both in currency and investment allocations.
Saying that having investments in our local (ZAR) market not only supports them but also still provides returns around local inflation rates. Local markets could also rebound significantly if our Government starts to get control of loadshedding and if we avoid blackouts. Longer-term – that Greylisting issue must be rectified. Foreign returns should still surpass local markets due to the seeming strength therein. Your longer-term risks here are US Dollar issues as discussed above and then also localised conflicts and geo-political tensions.
