31 October 2024

Welcome to the fifth edition of The Inside Track! While some months may resonate more than others, you’ll always find bite-sized insights here that impact our financial health in one way or another.

October was a relatively calm month in terms of market dynamics and economic news. The Rand gained some ground against the Euro and Pound but slipped slightly against the USD.

November, however, is shaping up to be quite different, with the upcoming US election set for a close race between contrasting ideologies – some clearer in policy direction than others.

Meanwhile, South Africa’s Medium-Term Budget was released yesterday.

The budget provides a mid-year update on revenue and expenditure trends compared to February’s budget, while outlining priorities for the next three years.

The finance minister highlighted early gains from economic reforms – such as improved electricity supply and lower business costs – with a second phase targeting new needs like bolstering local government.

Key Takeaways:

• Growth Projections: National Treasury forecasts 1.1% GDP growth this year, revised from 1.3%, and an average of 1.8% annually over three years – below the global growth forecast of 3.2% for 2024 and 2025

   

• Upside Scenario: With continued reforms, growth could reach 2.8% in 2025, compared to a baseline estimate of 1.7%

   

• Revenue & Expenditure: Revenue is revised to R1.79 trillion, and expenditure to R2.2 trillion, with debt costs at R388.9 billion

   

• Budget Deficit: Expected to reduce to 3.4% of GDP by 2027/28 from 4.7% this year; debt stabilizing at 75.5% of GDP by 2025/26

   

• Social Spending & SOE’s: Commitment to critical services continues, alongside efforts to control wage costs and reduce bailouts

   

• Tax Revenue: Projected R22.3 billion shortfall due to lower import duties and fuel levies, with tax compliance improvements anticipated to support revenue

   

• Additional Expenditures: R10.4 billion higher than February, mainly for SANRAL’s e-toll debt and troop deployments in the DRC

Market Indicators

Returns % (to 26th October 2024)

Global Market News

• Trade tensions have intensified this year as both the U.S. and EU raised tariffs on Chinese goods, risking the current disinflation trend and potentially leading to higher interest rates

• The success of Big Tech’s earnings season likely hinges on Thursday’s results from Apple and Amazon, the last reports from the ‘Magnificent Seven’ aside from Nvidia. This follows Microsoft and Meta’s underwhelming results, which weighed on the market, contrasted with Alphabet and Tesla’s stronger performances

• International Monetary Fund (IMF) Growth Outlook:

  • The IMF raised its 2024 growth forecast for the UK, driven by lower inflation and interest rates

  • The Eurozone’s growth outlook for 2024 was adjusted down to 0.8%, with potential stagnation in Germany

  • In China, the IMF cautioned about a potential downturn in the property market, reducing growth expectations to 4.8% for 2024 and 4.5% for 2025

• UK and Eurozone Rate Changes:

  • UK inflation has fallen to 1.7%, raising the chances of additional rate cuts.

  • The European Central Bank (ECB) has cut rates for the third time this year, bringing the benchmark rate to 3.25%

South Africa

• Inflation has slowed to 3.8%, marking its lowest level in four years. Monetary policymakers are set to announce their final rate decision of the year on 21st November

• South Africa has pledged to cut emissions from its coal-fired power plants to secure $2.6 billion in climate finance, despite proposing delays in closing three facilities. The plan targets emission reductions across several units at Eskom’s 14 plants

• The Financial Action Task Force gave South Africa a “positive review” for addressing 16 of 22 action items on financial crime and terrorism financing, with six items remaining for February 2025

• The FSCA has provisionally suspended Banxso’s license, and the FIC has directed banks to freeze its accounts. ( be weary of aggressive marketing and returns that seem to good to be true)

  In November’s mailer, I’ll share my insights on protecting yourself from market-driven greed and fear, largely influenced by personal biases ( Don’t miss it)

Food for Thought

• South Africa, the world’s 15th-biggest source of climate-warming greenhouse gases, relies on coal for about four-fifths of its electricity generation

• Rafael Nadal, with an incredible 22 Grand Slam titles and a career prize total of approximately $134.9 million, is set to retire this November

• TikTok’s 41-year-old founder Zhang Yiming now tops China’s rich list with $49.3 billion! Not a bad reward for creating the app that’s made creativity a worldwide sensation

• This month, the iPod turned 23! Apple’s first media player – the tiny gadget that let us carry a thousand songs – is now officially vintage

• Abraham Lincoln is remembered not just for his achievements but also for his iconic beard, which he grew after 11-year-old Grace Bedell suggested it in a letter on October 15, 1860. She believed whiskers would improve his appearance and win more votes. Lincoln took her advice – and the rest is history !

Quote for the Month

“Everything will be okay in the end.  If it’s not okay, it’s not the end.”

John Lennon (9 October 1940 – 8 December 1980)

Never Lose Faith

Chart of the Month

American Presidents Change, Profits Endure: The $1 Investment That Outlasted Them All:

History to date has shown that it’s been less about who’s in the Oval Office and more about the benefits of staying focused on long-term goals. This chart illustrates how a $1 investment since 1961 has grown steadily, regardless of the party in power. Tune out the noise and keep your eyes on the horizon – that’s where real growth happens over time!

Wrap-Up: Tip for your Financial Wellbeing

To conclude this month’s mailer, I’d like to start with a quote from Warren Buffett, followed by a short and simple story I created this week

“Do not save what is left after spending; instead spend what is left after saving”

When it comes to making purchases, every decision counts – especially regarding your future.

The following scenario highlights how a simple choice can lead to significantly more money in your pocket and greater financial security when you need it most.

Consider the following (at age 45)

• Vehicle A: You’re considering purchasing a new car for R850,000, financed over 5 years at a 10% interest rate
• Vehicle B: Alternatively, you could opt for a cheaper vehicle priced at R500,000, with the same financing terms.

By choosing Vehicle B, you save about R7,436 each month. Instead of paying more money into a car that depreciates, you invest the difference:

Here’s How It Plays Out:

1. Assumptions:
   • The investment earns an 8.5% annual return after tax
   • You contribute monthly until age 50 (that’s 5 years of investing)
   • Let the investment grow until age 65
   • Account for a 4% inflation rate

What Happens Next?

• At Age 50:
  • After 5 years of investing, you have approximately R557,509 in your investment

• Fast forward to Age 65 ( assumed retirement age)
  • With no additional contributions, your investment grows to approximately R1,895,390
  • The present value: R865,031

  This equates to approximately an extra R173,006 in spending money per year for the next five years of your retirement.

This scenario isn’t just about numbers; it’s about the choices we make today and how they shape our tomorrow. Consider the long-term impact of your decisions – your future self will thank you.

Before I wrap up, here’s something that might help you think about time a little differently. I’ve used this reframing since I started as an advisor 24 years ago, and its impact is as effective today as it was then :

That’s a wrap from me for October. I hope these insights have offered some value or empowered you in some way.

Looking forward to reconnecting in November.

As always, if you have any questions or need any assistance, I’m just a click away.

Kind Regards
Robert Taylor

Reference: Morningstar, Forbes, NinetyOne, Blackrock, Bloomberg

Please be aware that the contents of this blog include the opinions of Robert Taylor and are not to be construed as advice or acted on before consulting with Robert Taylor or any other licensed Financial Services Provider where professional process and the FAIS act and General Code of Conduct are applied.

31 October 2024

Welcome to the fifth edition of The Inside Track! While some months may resonate more than others, you’ll always find bite-sized insights here that impact our financial health in one way or another.

October was a relatively calm month in terms of market dynamics and economic news. The Rand gained some ground against the Euro and Pound but slipped slightly against the USD.

November, however, is shaping up to be quite different, with the upcoming US election set for a close race between contrasting ideologies – some clearer in policy direction than others.

Meanwhile, South Africa’s Medium-Term Budget was released yesterday.

The budget provides a mid-year update on revenue and expenditure trends compared to February’s budget, while outlining priorities for the next three years.

The finance minister highlighted early gains from economic reforms – such as improved electricity supply and lower business costs – with a second phase targeting new needs like bolstering local government.

Key Takeaways:

• Growth Projections: National Treasury forecasts 1.1% GDP growth this year, revised from 1.3%, and an average of 1.8% annually over three years – below the global growth forecast of 3.2% for 2024 and 2025.
• Upside Scenario: With continued reforms, growth could reach 2.8% in 2025, compared to a baseline estimate of 1.7%.
• Revenue & Expenditure: Revenue is revised to R1.79 trillion, and expenditure to R2.2 trillion, with debt costs at R388.9 billion.
• Budget Deficit: Expected to reduce to 3.4% of GDP by 2027/28 from 4.7% this year; debt stabilizing at 75.5% of GDP by 2025/26.
• Social Spending & SOE’s: Commitment to critical services continues, alongside efforts to control wage costs and reduce bailouts.
• Tax Revenue: Projected R22.3 billion shortfall due to lower import duties and fuel levies, with tax compliance improvements anticipated to support revenue.
• Additional Expenditures: R10.4 billion higher than February, mainly for SANRAL’s e-toll debt and troop deployments in the DRC.

Market Indicators

Returns % (to 26th October 2024)

Global Market News

• Trade tensions have intensified this year as both the U.S. and EU raised tariffs on Chinese goods, risking the current disinflation trend and potentially leading to higher interest rates.

   

• The success of Big Tech’s earnings season likely hinges on Thursday’s results from Apple and Amazon, the last reports from the ‘Magnificent Seven’ aside from Nvidia. This follows Microsoft and Meta’s underwhelming results, which weighed on the market, contrasted with Alphabet and Tesla’s stronger performances.

   

• International Monetary Fund (IMF) Growth Outlook:
  • The IMF raised its 2024 growth forecast for the UK, driven by lower inflation and interest rates.
  • The Eurozone’s growth outlook for 2024 was adjusted down to 0.8%, with potential stagnation in Germany.
  • In China, the IMF cautioned about a potential downturn in the property market, reducing growth expectations to 4.8% for 2024 and 4.5% for 2025.

     

• UK and Eurozone Rate Changes:
  • UK inflation has fallen to 1.7%, raising the chances of additional rate cuts.
  • The European Central Bank (ECB) has cut rates for the third time this year, bringing the benchmark rate to 3.25%.

     

   

South Africa

• Inflation has slowed to 3.8%, marking its lowest level in four years. Monetary policymakers are set to announce their final rate decision of the year on 21st November. 
• South Africa has pledged to cut emissions from its coal-fired power plants to secure $2.6 billion in climate finance, despite proposing delays in closing three facilities. The plan targets emission reductions across several units at Eskom’s 14 plants. 
• The Financial Action Task Force gave South Africa a “positive review” for addressing 16 of 22 action items on financial crime and terrorism financing, with six items remaining for February 2025. 
• The FSCA has provisionally suspended Banxso’s license, and the FIC has directed banks to freeze its accounts. ( be weary of aggressive marketing and returns that seem to good to be true).

  In November’s mailer, I’ll share my insights on protecting yourself from market-driven greed and fear, largely influenced by personal biases ( Don’t miss it).

   

Food for Thought

• South Africa, the world’s 15th-biggest source of climate-warming greenhouse gases, relies on coal for about four-fifths of its electricity generation. 
• Rafael Nadal, with an incredible 22 Grand Slam titles and a career prize total of approximately $134.9 million, is set to retire this November. 
• TikTok’s 41-year-old founder Zhang Yiming now tops China’s rich list with $49.3 billion! Not a bad reward for creating the app that’s made creativity a worldwide sensation. 
• This month, the iPod turned 23! Apple’s first media player – the tiny gadget that let us carry a thousand songs – is now officially vintage. 
• Abraham Lincoln is remembered not just for his achievements but also for his iconic beard, which he grew after 11-year-old Grace Bedell suggested it in a letter on October 15, 1860. She believed whiskers would improve his appearance and win more votes. Lincoln took her advice – and the rest is history!  

Quote for the Month

“Everything will be okay in the end.  If it’s not okay, it’s not the end.”

John Lennon (9 October 1940 – 8 December 1980)

Never Lose Faith

Chart of the Month

American Presidents Change, Profits Endure: The $1 Investment That Outlasted Them All:

History to date has shown that it’s been less about who’s in the Oval Office and more about the benefits of staying focused on long-term goals. This chart illustrates how a $1 investment since 1961 has grown steadily, regardless of the party in power. Tune out the noise and keep your eyes on the horizon – that’s where real growth happens over time!

Wrap-Up: Tip for your Financial Wellbeing

To conclude this month’s mailer, I’d like to start with a quote from Warren Buffett, followed by a short and simple story I created this week.

“Do not save what is left after spending; instead spend what is left after saving”

When it comes to making purchases, every decision counts – especially regarding your future.

The following scenario highlights how a simple choice can lead to significantly more money in your pocket and greater financial security when you need it most.

Consider the following (at age 45)

• Vehicle A: You’re considering purchasing a new car for R850,000, financed over 5 years at a 10% interest rate.
• Vehicle B: Alternatively, you could opt for a cheaper vehicle priced at R500,000, with the same financing terms.

By choosing Vehicle B, you save about R7,436 each month. Instead of paying more money into a car that depreciates, you invest the difference:

Here’s How It Plays Out:

1. Assumptions:
   • The investment earns an 8.5% annual return after tax
   • You contribute monthly until age 50 (that’s 5 years of investing).
   • Let the investment grow until age 65.
   • Account for a 4% inflation rate.

What Happens Next?

• At Age 50:
  • After 5 years of investing, you have approximately R557,509 in your investment.
• Fast forward to Age 65 ( assumed retirement age)
  • • With no additional contributions, your investment grows to approximately R1,895,390.
    • The present value: R865,031.

  This equates to approximately an extra R173,006 in spending money per year for the next five years of your retirement.

This scenario isn’t just about numbers; it’s about the choices we make today and how they shape our tomorrow. Consider the long-term impact of your decisions – your future self will thank you.

Before I wrap up, here’s something that might help you think about time a little differently. I’ve used this reframing since I started as an advisor 24 years ago, and its impact is as effective today as it was then:

That’s a wrap from me for October. I hope these insights have offered some value or empowered you in some way.

Looking forward to reconnecting in November.

As always, if you have any questions or need any assistance, I’m just a click away.

Kind Regards
Robert Taylor

Reference: Morningstar, Forbes, NinetyOne, Blackrock, Bloomberg

Please be aware that the contents of this blog include the opinions of Robert Taylor and are not to be construed as advice or acted on before consulting with Robert Taylor or any other licensed Financial Services Provider where professional process and the FAIS act and General Code of Conduct are applied.