The impact on investments

RECENT UNREST

The impact on investments (Glacier Investment Team)

The last few weeks have been some of the darkest hours in the history of our beautiful country.

But through all the scenes of heartache there are also stories of hope. It is encouraging to see entire communities coming together to protect what is dear to them, civilians heading back to the war-torn streets to start the clean-up process and good Samaritans who risk their own safety to transport food from Gauteng to areas in KZN. 

It is understandable that in these uncertain times, clients are concerned about their investments.

What happens on the streets is not exactly reflected in the markets

It's important to emphasise that what happens on the streets does not necessarily get reflected in the markets to the same degree.  That is especially true for our local market, as roughly 70% of the JSE Top 40 earnings are derived offshore and thus the market is predominantly driven by global factors rather than domestic headlines.

With the rand hedgers dominating the index, the rand also serves as a shock absorber. The JSE All Share traded 0.22% higher over the five trading days ending 16 July 2021, aided by the weaker currency, while the SA Inc stocks (banks and retailers) were the hardest hit.

Without minimising the impact of the unrest on people's lives and livelihoods, one should consider objectively which business sectors have been affected: retail outlets, shopping malls, industrial warehouses, factories and logistics companies - almost entirely unlisted businesses.  This means that a small proportion of the JSE has been directly affected. 

With regard to the wider macroeconomic implications, such as business and investor sentiment, the potential impact on direct foreign investment, and the unrest becoming an impetus for a further brain drain from South Africa, the effects are clearly negative in the short term.  Whether it becomes a long-term issue remains to be seen, and will depend partly on how quickly the situation is brought under control.

The globally focused counters on the JSE will benefit as the ZAR weakens, and if you look at the top 10 holdings in most portfolios they include stocks like BAT, BHP Billiton, Naspers, PGM & Gold miners and so forth, with underweight exposures to SA Inc. stocks, so portfolios are well positioned for this. We also increased offshore exposure in the portfolios towards the maximum allowable weight during the last round of investment committee meetings, which means that the weakening of the ZAR will also add to portfolio returns.

Our portfolios are well positioned

At this stage, we are confident about the current positioning of the client portfolios. We are constantly in communication with underlying managers and also rely on them to make the right calls on behalf of our clients. Some managers have already started to make shifts to specific counters within the portfolios where necessary, to make sure they have low exposure to affected segments of the market,

Bouwer Du Plessis

B Proc LLB, CFP, Adv CFP

Strata Financial Services