The Inside Track – January Insights

31 January 2025

Welcome to the seventh edition of The Inside Track!
I hope your year is off to a great start after a well-earned break. The festive season feels like it was just yesterday, yet here we are – already a month in, with Easter eggs already making their way back onto the shelves and the year gathering momentum.

This year, I’ll continue sharing insights that cut through the noise – covering markets, economics, tax, and personal finance. I’ll also focus on practical strategies that can support better financial decisions, ease uncertainty, and maybe even contribute to a longer, less stressful life

Along the way, expect bite-sized advice, a few humorous facts, and a fair amount of challenging the status quo. By the end of 2025 I hope you’ll feel more informed, more confident, and a step ahead so here we go:

Market indicators

Returns % (to 24 January 2025)

Global Market News

• The Federal Reserve is holding rates steady at 4.5%. Several policymakers have indicated that they also anticipate fewer rate reductions this year, citing data showing the U.S. economy remains strong and inflation has been more persistent than expected.

• China’s DeepSeek just delivered a major AI breakthrough at low cost, exposing how US tech keeps underestimating Chinese innovation. Nvidia still down 15.74% this week, felt the impact. More surprises ahead.

• Elon Musk’s SpaceX is pressuring Icasa to revise its 30% local ownership requirement, arguing that the rule threatens Starlink’s rollout in South Africa, a move that could leave the country lagging in global satellite internet access.

• Japan’s biggest rate hike since 2008 signals a policy shift as the Bank of Japan raises interest rates by 25 basis points to 0.5%, responding to sustained inflation and rising wages.

• China’s economy surges past expectations, with fourth-quarter GDP hitting 5.4% as stimulus measures kick in – pushing full-year growth to 5% and reinforcing its global economic dominance.

• The ECB cuts rates to 2.75% as the Eurozone grapples with economic stagnation, signaling concerns over sluggish growth.

South Africa

• South African Reserve Bank Reduces Key Interest Rate: SARB has cut its main lending rate by 25 basis points( its now 7.5%), marking the third consecutive reduction aimed at stimulating economic growth amid global trade uncertainties.

• South Africa plans to raise R925.98 million ($50 million) for its 2027 Formula 1 bid, with Sports Minister Gayton McKenzie confirming talks with F1 organizers and potential sponsors like Heineken and Red Bull.

• Cape Town is getting a new gateway – Cape Winelands Airport is set to open in 2027, bringing local and international flights, a 3,500m runway, and space for 5.2 million travelers a year.

• South Africa’s new expropriation law: Land grabs, but make it ‘just and equitable. The government can now seize land without compensation – if it’s in the “public interest”. What could possibly go wrong?

• Eskom Tariff Hike Approved – Nersa has granted Eskom a 12.7% electricity tariff increase, significantly lower than the 36% requested. While this eases the burden on consumers, Eskom’s financial and operational challenges remain.

Food for Thought

• Blockbuster Had One Job – In 2000, Netflix offered to sell itself to Blockbuster for $50 million. Blockbuster laughed them out of the room. Today, Netflix is worth over $200 billion. Blockbuster? Well… there’s still one store left.

• The Accidental Bitcoin Billionaire – In 2010, a man bought two pizzas for 10,000 Bitcoin. Back then, it was worth about $41. Today, those coins would be worth over $400 million. Hope the pizza was worth it!

• South Africa Once Had a Coin Worth More Than a House – The 1898 Single 9 Pond coin is one of the rarest in the world. Only one was ever made, and it last sold for over R20 million – enough to buy a luxury home in Cape Town (Just).

• Lego Turned 67 This Week – On January 28, 1958, the patent for the iconic interlocking brick was filed. Since then, Lego has built an empire – producing more minifigures than there are people on Earth!

My Quote for the Month

“Even if you’re on the right track, you’ll get run over if you just sit there”

Will Rogers: (1879–1935)

A perfect reminder that knowing what to do isn’t enough – you have to take action, whether in investing, financial planning, or life in general.

Chart of the Month

There’s no shortage of market forecasters – most are entertaining at best and seem convinced they have unique insights the rest of us somehow missed. Some insist tech will keep driving markets higher, others claim real estate is the next bubble set to burst. Bitcoin believers argue crypto is the future of money, while gold bugs swear it’s the only true safe haven. And of course, there are always those predicting the imminent collapse of the U.S. Dollar.

At first glance, you might think the table below( the MSCI World Index) is here to show that markets go up over time. But that’s not why I’ve included it. It’s here to show you that markets go down but there is silver lining.

We’re focusing on the dips and corrections. Why? Because they happen – and will happen again. If you understand that markets go down but have historically recovered, you’ll see corrections for what they are: either the temporary emotional cost of long-term wealth preservation or a permanent loss.

Sell in a panic, and the loss becomes real. Stay invested, and you endure the short-term discomfort – but keep your money working. The real risk? Letting inflation deplete your wealth while sitting in cash or believing you can time a market. Studies, including DALBAR’s long-term investor behavior research, show that emotional reactions often lead to worse returns than simply staying invested.

Oh yes – the silver lining: Markets drop, investors panic, headlines scream – but history keeps proving that those who stay invested come out ahead. So, maybe the secret to wealth isn’t a crystal ball, it’s just a little patience.

Wrap – Up: Tip for Your Financial Wellbeing

Retirement Annuities: Offshore Wealth – What’s the Trade-Off?

Retirement annuities (RAs) offer an upfront tax rebate, but this is really just deferred tax.

As the gap between South Africa’s economy and global markets widens, the long-term impact of RA restrictions becomes harder to ignore – especially when considering how local vs. offshore investments affect long-term wealth. Does the trade-off still make sense in today’s shifting landscape?

The Offshore Exposure Problem

One of the key constraints of RAs is Regulation 28, which caps offshore exposure at 45%. This means a significant portion of retirement capital is required to remain in South African markets, even as the country faces challenges in a globalized economy.

With ongoing policy uncertainty and economic shifts within the GNU, the risk of a weaker rand and slower local growth remains a consideration for long-term investors.

Another key issue is that this offshore cap is not within an investor’s control. Policymakers can adjust it at any time, meaning long-term investment strategy is subject to regulatory changes i.e. the offshore cap can in practice be reduced.

If foreign investment slows and the rand depreciates further, portfolio performance may be impacted. The concern is that with more than half of retirement savings tied to local markets, the potential for lower relative returns exists if SA equity underperforms global markets over time.

Global vs. SA Equity: 15-Year Performance

• Global Equity: 15.7% per year (average return over 15 years)
• SA Equity: 10.5% per year (average return over 15 years)
• Outperformance: Global Equity has delivered 1.5x the returns of SA Equity over this period.

Some context: the JSE accounts for approximately one percent of global equity market capitalization.

The Silent Risk: Inflation

A weakening rand is often accompanied by rising inflation, which can erode purchasing power over time. Inflation functions as a silent risk, gradually reducing the real value of money.

A useful way to illustrate this is the Rule of 72: divide 72 by the inflation rate to estimate how many years it takes for money to lose half its value.

At an inflation rate of 6.5% (likely more realistic than stated CPI), buying power could halve in approximately 11 years. This means that the cost of maintaining your lifestyle today could double in just over a decade.

This is why investing in equity, particularly in markets with the most promising long-term growth potential, play a vital role in wealth preservation.

The Takeaway: Balance is Key

RAs can have a role in a retirement plan, but they may not be the most effective standalone investment vehicle. The tax benefits need to be weighed against other considerations such as liquidity constraints, inflation risk, and offshore exposure limits.

I hope this month’s mailer gave you something valuable to think about. Looking forward to catching up again at the end of February. Until then, and as always, I’m just a click away if you’d like more insight or guidance.

Take care, stay mindful, and enjoy the moments that matter.