30 September 2024

 

Welcome to the fourth edition of The Inside Track! Here, you’ll find bite-sized insights that impact us all in one way or another.

I ended August’s edition by expressing hope that September would bring positive news—and wow, did it deliver! So, what happened, and how does this affect you?

As anticipated, the Fed reduced interest rates by 0.5%—a slightly higher margin than expected. The SARB also cut rates by 0.25%, and China introduced a new stimulus plan, which led to a 20.42% increase on the Shanghai Stock Exchange in just 5 days—remarkable.

This combination strengthened the rand and contributed to an exceptional week on the JSE, which surged by 5.88% in just seven days, making it one of the top-performing stock markets globally.

To put the South African market’s performance in perspective, SA equities have gained 17.5% over just five months. By contrast, you would have needed to be invested in a money market fund for almost 3 years to achieve the same return before tax.

Fuel prices are also 18% lower over the last year, with further cuts expected in October, which should start reducing the costs of goods. Lower interest rates will result in more disposable income and increased financial transactions—putting the economy on the front foot, exactly what retailers need ahead of the festive season. Yip its 12 weeks till Christmas !

By all accounts, South Africa is in a healthier position than it has been in recent years—at least when measured by key market and economic indicators.

Whether this positive momentum continues will depend on various factors, including the first political “test” in Tshwane. However, we should remember that in all aspects of life, there will always be ebbs and flows. For now, let’s appreciate the much-needed positivity—especially after the Springboks’ victory in the Castle Championship on Saturday.

The Spirit/Gees at Mbombela reminded me of what a great nation we are and can continue to be when we choose to focus on what’s possible, rather than what isn’t.

Market Indicators

Returns % (to 27 September 2024)

Global Market News

• Although September’s rate cut was aggressive, the Federal Reserve is expected to implement additional rate reductions through the remainder of 2024 and into 2025

  • Their projections indicate a year-end Fed Funds Rate of 4.25% to 4.50%, while market expectations lean towards a more dovish 4.00% to 4.25%

  • By the close of 2025, the Fed Funds Rate is anticipated to drop to around 2.8%

• A recent survey shows 30% of U.S. companies have delayed or canceled investments, a 28% increase from last quarter – mainly due to election-related uncertainty, its going to be a bumpy ride to the election

• In the U.K., the BOE kept rates at 5%, with just one vote for a 25bps cut. Although headline inflation remained stable, core inflation unexpectedly increased to 3.6%, driven by the culture and hospitality sectors

• European stocks were higher this month as investors evaluated the European Central Bank’s recent rate cut and its impact on future monetary policy

• The US, EU, and UK have signed the first legally binding international AI treaty, aimed at promoting innovation while addressing potential risks to human rights, democracy, and the rule of law

South Africa

• Although South Africa began hiking rates early in 2021, the SARB was among the last to cut, lowering its main rate to 8% after headline inflation dropped just below 4.5%

• The rand dropped below R17.20 for the first time since January 2023, boosted by China’s stimulus package and a favorable SA-US interest rate gap, gaining over 2% against the dollar in the past week

• Data from the Central Energy Fund (CEF) for the second week of September indicates stable market conditions, increasing the likelihood of a significant drop in petrol and diesel prices for October

• During a recent Public Economics Forum, Commissioner Edward Kieswetter shared that SARS leveraged AI to identify over R10 billion in fraudulent refunds and now has the capability to complete assessments in less than seven seconds

• Former Group 5 CEO Mike Lomas, once a respected figure in SA’s construction sector, was extradited to South Africa at age 78, arriving from London in a wheelchair under police escort to face criminal charges related to the award of a corrupt tender for the Kusile Power Station

• The EU’s Carbon Border Adjustment Mechanism (CBAM) threatens SA’s economy by potentially reducing exports, GDP, and jobs by 2050 due to our high carbon intensity, urging SA’s faster transition to low-carbon production

• Southern Sun Limited has secured a 50-year lease for its 734-room Elangeni & Maharani hotel on Durban’s beachfront. The deal with eThekwini Metro includes a R1 billion investment to refurbish the Elangeni, Maharani, Garden Court South Beach, and The Edward hotels

Food for Thought

• Eskom has requested R446 billion in allowable revenue for FY25/26 from the National Energy Regulator of South Africa (NERSA), which would result in a 36.15% tariff hike starting April 1st next year

• Elon Musk’s Starlink is in talks to launch in South Africa, aiming to expand its high-speed satellite internet service into Africa’s most developed economy.

• The Financial Intelligence Centre (FIC) reports that South Africa is on track to meet international anti-money laundering standards and could be off the FATF grey list by February 2025

• September 17th marks a pivotal moment in U.S. history—the adoption of the Constitution in 1787. Without it, the country and our world today would look vastly different, with far fewer civil liberties

Quote for the Month

“Remember, hope is a good thing, maybe the best of things, and no good thing ever dies”

Andy Dufresne – Shawshank Redemption

Chart of the Month

For those who don’t know of Sir David Brailsford, he championed a concept known as the “Aggregation of Marginal Gains,” which he described as “a one percent improvement in everything you do.”

His idea was that by making minor enhancements in every aspect of cycling these small changes would combine to produce exceptional results. This theory has been a cornerstone of success for the very successful sports teams and brands that he has worked with.

In my opinion it applies just as effectively to business, investing, and health, its incredible impact can be seen below:

Wrap-Up: Tip for your Financial Wellbeing

 

The Perils of Money Markets and Savings Accounts

Investor behaviour and biases are often the biggest barriers to maximizing investment potential- not the markets themselves. Panic, even in mild forms, triggers irrational thinking that aligns with biases and often results in costly decisions that increase stress and ultimately affect your health.

Money markets are a prime example. They serve one purpose well: short-term liquidity, not long-term growth. Their yields are influenced by interest rates, which correlate closely with inflation. Additionally, the interest is taxed annually, diminishing real returns.

 

The Pitfall of Market Timing

Waiting in money markets until the “right time” to invest in equities is a common but flawed strategy. Market efficiency means that new information is priced into equities long before you notice and can react. By the time positive trends are visible, the opportunity has often passed.

The effect of repeating this behavior is best captured by what I consider one of the most powerful illustrations in investing—originally sketched by Warren Buffett on a simple piece of paper (image below).

 

Consider This Scenario:

For a two-year period, a money market yielding 8% p.a. results in just a 2.12% effective real return after accounting for a 30% marginal tax rate and 4.5% annual inflation.

In contrast, SA equities, recently gained 16.7% in just six months, translating into a 12.2% real return over the same period with no interest tax payable.

While capital gains tax (CGT) will apply upon sale, using the same marginal tax rate, the net gain would be approximately 10.2%.

That’s a 381% difference.

 

The Takeaway:

Attempting to time the market is rarely effective. Instead, stay invested in assets that align with your long-term objectives, and resist the urge to react to short-term events, trends, mainstream media, or those “expert” opinions shared around the braai.

That’s a wrap for September!

With the U.S. elections just 36 days away, October is sure to bring new developments. I look forward to connecting with you at the end of October for my next update.

As always, if you have any questions or need 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.

30 September 2024

 

Welcome to the fourth edition of The Inside Track! Here, you’ll find bite-sized insights that impact us all in one way or another.

I ended August’s edition by expressing hope that September would bring positive news—and wow, did it deliver! So, what happened, and how does this affect you?

As anticipated, the Fed reduced interest rates by 0.5%—a slightly higher margin than expected. The SARB also cut rates by 0.25%, and China introduced a new stimulus plan, which led to a 20.42% increase on the Shanghai Stock Exchange in just 5 days—remarkable.

This combination strengthened the rand and contributed to an exceptional week on the JSE, which surged by 5.88% in just seven days, making it one of the top-performing stock markets globally.

To put the South African market’s performance in perspective, SA equities have gained 17.5% over just five months. By contrast, you would have needed to be invested in a money market fund for almost 3 years to achieve the same return before tax.

Fuel prices are also 18% lower over the last year, with further cuts expected in October, which should start reducing the costs of goods. Lower interest rates will result in more disposable income and increased financial transactions—putting the economy on the front foot, exactly what retailers need ahead of the festive season. Yip its 12 weeks till Christmas !

By all accounts, South Africa is in a healthier position than it has been in recent years—at least when measured by key market and economic indicators.

Whether this positive momentum continues will depend on various factors, including the first political “test” in Tshwane. However, we should remember that in all aspects of life, there will always be ebbs and flows. For now, let’s appreciate the much-needed positivity—especially after the Springboks’ victory in the Castle Championship on Saturday.

The Spirit/Gees at Mbombela reminded me of what a great nation we are and can continue to be when we choose to focus on what’s possible, rather than what isn’t.

 

Market Indicators

Returns % (to 27 September 2024)

Global Market News

• Although September’s rate cut was aggressive, the Federal Reserve is expected to implement additional rate reductions through the remainder of 2024 and into 2025.

   

  • Their projections indicate a year-end Fed Funds Rate of 4.25% to 4.50%, while market expectations lean towards a more dovish 4.00% to 4.25%.

     

  • By the close of 2025, the Fed Funds Rate is anticipated to drop to around 2.8%.

   

• A recent survey shows 30% of U.S. companies have delayed or canceled investments, a 28% increase from last quarter – mainly due to election-related uncertainty, its going to be a bumpy ride to the election.

   

• In the U.K., the BOE kept rates at 5%, with just one vote for a 25bps cut. Although headline inflation remained stable, core inflation unexpectedly increased to 3.6%, driven by the culture and hospitality sectors.

   

• European stocks were higher this month as investors evaluated the European Central Bank’s recent rate cut and its impact on future monetary policy.

   

• The US, EU, and UK have signed the first legally binding international AI treaty, aimed at promoting innovation while addressing potential risks to human rights, democracy, and the rule of law.

   

   

South Africa

• Although South Africa began hiking rates early in 2021, the SARB was among the last to cut, lowering its main rate to 8% after headline inflation dropped just below 4.5%. 
• The rand dropped below R17.20 for the first time since January 2023, boosted by China’s stimulus package and a favorable SA-US interest rate gap, gaining over 2% against the dollar in the past week. 
• Data from the Central Energy Fund (CEF) for the second week of September indicates stable market conditions, increasing the likelihood of a significant drop in petrol and diesel prices for October. 
• During a recent Public Economics Forum, Commissioner Edward Kieswetter shared that SARS leveraged AI to identify over R10 billion in fraudulent refunds and now has the capability to complete assessments in less than seven seconds. 
• Former Group 5 CEO Mike Lomas, once a respected figure in SA’s construction sector, was extradited to South Africa at age 78, arriving from London in a wheelchair under police escort to face criminal charges related to the award of a corrupt tender for the Kusile Power Station. 
• The EU’s Carbon Border Adjustment Mechanism (CBAM) threatens SA’s economy by potentially reducing exports, GDP, and jobs by 2050 due to our high carbon intensity, urging SA’s faster transition to low-carbon production. 
• Southern Sun Limited has secured a 50-year lease for its 734-room Elangeni & Maharani hotel on Durban’s beachfront. The deal with eThekwini Metro includes a R1 billion investment to refurbish the Elangeni, Maharani, Garden Court South Beach, and The Edward hotels. 

 

Food for Thought

• Eskom has requested R446 billion in allowable revenue for FY25/26 from the National Energy Regulator of South Africa (NERSA), which would result in a 36.15% tariff hike starting April 1st next year.

   

• Elon Musk’s Starlink is in talks to launch in South Africa, aiming to expand its high-speed satellite internet service into Africa’s most developed economy.

   

• The Financial Intelligence Centre (FIC) reports that South Africa is on track to meet international anti-money laundering standards and could be off the FATF grey list by February 2025

   

• September 17th marks a pivotal moment in U.S. history—the adoption of the Constitution in 1787. Without it, the country and our world today would look vastly different, with far fewer civil liberties

 

Quote for the Month

“Remember, hope is a good thing, maybe the best of things, and no good thing ever dies”.

Andy Dufresne – Shawshank Redemption.

Chart of the Month

For those who don’t know of Sir David Brailsford, he championed a concept known as the “Aggregation of Marginal Gains,” which he described as “a one percent improvement in everything you do.”

His idea was that by making minor enhancements in every aspect of cycling these small changes would combine to produce exceptional results. This theory has been a cornerstone of success for the very successful sports teams and brands that he has worked with.

In my opinion it applies just as effectively to business, investing, and health, its incredible impact can be seen below:

Wrap-Up: Tip for your Financial Wellbeing

 

The Perils of Money Markets and Savings Accounts

Investor behaviour and biases are often the biggest barriers to maximizing investment potential- not the markets themselves. Panic, even in mild forms, triggers irrational thinking that aligns with biases and often results in costly decisions that increase stress and ultimately affect your health.

Money markets are a prime example. They serve one purpose well: short-term liquidity, not long-term growth. Their yields are influenced by interest rates, which correlate closely with inflation. Additionally, the interest is taxed annually, diminishing real returns.

 

The Pitfall of Market Timing

Waiting in money markets until the “right time” to invest in equities is a common but flawed strategy. Market efficiency means that new information is priced into equities long before you notice and can react. By the time positive trends are visible, the opportunity has often passed.

The effect of repeating this behavior is best captured by what I consider one of the most powerful illustrations in investing—originally sketched by Warren Buffett on a simple piece of paper (image below).

 

Consider This Scenario:

For a two-year period, a money market yielding 8% p.a. results in just a 2.12% effective real return after accounting for a 30% marginal tax rate and 4.5% annual inflation.

In contrast, SA equities, recently gained 16.7% in just six months, translating into a 12.2% real return over the same period with no interest tax payable.

While capital gains tax (CGT) will apply upon sale, using the same marginal tax rate, the net gain would be approximately 10.2%.

That’s a 381% difference.

 

The Takeaway:

Attempting to time the market is rarely effective. Instead, stay invested in assets that align with your long-term objectives, and resist the urge to react to short-term events, trends, mainstream media, or those “expert” opinions shared around the braai.

That’s a wrap for September!

With the U.S. elections just 36 days away, October is sure to bring new developments. I look forward to connecting with you at the end of October for my next update.

As always, if you have any questions or need 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.