swm newsletter22 2 - stone wealth management...end of the us multi-national company earnings...
TRANSCRIPT
Issue 22 | January/February 2017
www.stonewealthmanagement.co.za | 1
welcome2017 looks set to beanother 'interesting'
year! Global politics arenot for the faint
hearted, and in SouthAfrica, our drought
woes continue - theimpact on our
agricultural sector andmany other businesses
is severe.
Our message for thisyear ahead remains
consistent then:Stick to your
investment strategy.Ignore the noise and
distractions from themedia and stay focused
on building yourpersonal economic
foundations so that youcan enjoy life.
thelighthousethelighthouse
A new year it might be, but it seems that the uncertainty
being experienced, both at home and abroad, is showing
little sign of abating. Brexit and Trump still seem to be leading
the international headlines and of course, locally, we never
seem to be able to get away from the Zuma, Gupta and now
ABSA shenanigans.
'Financial pornography' (a topic we have visited before, see
Lighthouse 11, May 2014) is also alive and well, with the
media doing their usual job of providing sensationalist
coverage of financial and political news, to arouse an emotional
reaction in readers and viewers. This can be detrimental to
investors who let their emotions get the better of them and
make potentially poor decisions to buy or sell.
At a recent dinner party with friends, the conversation once
again turned to the obligatory 'state of the nation, state of
the world / global economics' topic, which usually ends with
the same questions: “What do we do about our investment?”;
“Should we be selling out of equity and converting to cash?”;
continued on page 2
By Linda Stonier, CEO & Head of Advice, SWM
Stick to your guns
2 | our expertise, your financial future
continued from page 1
“At these currency rates, shouldn't we be
buying cheap sterling or maybe property in
the UK?”; “With the election of Trump, should
we be selling our dollars?”
The questions continued to flow and, at
some point (being the only advisor at many
of our social get togethers), all eyes turned
to me. Time and time again, I am struck by
just how detrimental the human psyche can
be to one's financial health. Add the element
of 'financial pornography' to the mix and it
is no wonder people make the wrong
decisions. When you let your emotions get
involved, you make investment mistakes.
Allan Gray's Andrew Lapping recently wrote
a commentary on the rand, which really
drove home the message about emotional
decisions. He mentions that a year ago,
people were desperately seeking ways to
take money offshore, with the rand trading
at R15.60/US$. The rand is now trading at
approximately R 13.65/US$ and demand has
dropped. This is counterintuitive! Surely a
dollar at R13.60 is a better investment than
a dollar at R15.50, if the fundamentals are
the same? The deficit on the current account
is similar to a year ago, the fiscal position
unchanged and, if anything, the probability
of President Jacob Zuma leaving office early
has lessened, despite ever-more damning
evidence of corruption and mismanagement
in the ruling party.
Choices
American financial adviser and top-selling
author, Bill Bachrach, has an interesting way
of positioning this. He says that financial
success is never a function of what is out of
our control: “Success is always the result of
making good fundamental choices, in order
to be financially successful in any market,
economic, political or world-event climate.
For all the anxiety and stress experienced
during the 2008-2009 crises, for those who
simply ignored the noise (media hype,
political posturing, etc) and stuck to their
plan, it was uneventful.”
In South Africa, investors have become
accustomed to excellent returns over the
past 20 years. These returns were largely
driven by earnings growth and of course re-
rating. For some time now, the Stone Wealth
Management team has been cautioning
investors to adjust their return outlooks, as
we are expecting more muted returns going
forward. What this means is that now, more
than ever, investors need to stick to their
investment strategy. Why? One cannot make
up losses resulting from irrational behaviour
with easy returns like one could in the past.
To conclude, Bacharach puts it in a nutshell:
“No external event is the determining factor
of financial success or failure. The
determining factor, was, is today, and always
will be, the personal choices made before,
during and after these events.”
Issue 22 | January/February 2017
www.stonewealthmanagement.co.za | 3
Retirement planning needs to be a thoroughprocess and it requires one vital element tobe taken into account - life expectancy.
When figuring out how much to save foryour retirement, or how to withdraw assetsduring retirement, you have to take intoaccount that you may well live longer thanyou expect to, so how will you make yourmoney last for the additional years? Whatabout other costs such as long-term care orunexpected medical expenses?
According to Forbes magazine, a report bythe Social Security Commission shows thatin America, one in four people alive at theage of 65 will live past the age of 90, whileone in ten will live past 95. In South Africa,our statistics are different due to ourdemographics: our diverse society meansthat the national average life expectancy of61, as provided by a Statistics SA report in2016, doesn't actually apply to many of thepeople who are in a position to plan for theirretirement. Rather, factors such as access tomedical care and leading a healthier lifestyledue to the higher standard of living,contribute to a much longer lifespan. Formany South Africans then, living into their80's and 90's is to be expected.
Live longer, work longer
With a longer lifespan, people are beingencouraged to work longer too, althoughnot necessarily full time. In America, this isknown as the 'greying workforce'. Workingpast the usual retirement age provides youwith an income for longer, but it has a hostof other positive benefits too: It can delaythe onset of age-related diseases likedementia, it keeps you socially active,prevents isolation and can provide you witha sense of purpose. Plus, many people derivegreat enjoyment and personal satisfactionfrom their work.
The Stone Wealth Management teamappreciates that, once you retire, you cannotearn back capital lost due to poor advice.Talk to us about how to invest your moneyin solutions that will enable you tocomfortably achieve your lifestyle goals, forhowever long that may be.
Sourceswww.statssa.gov.za/?p=8176www.forbes.com/sites/jamiehopkins/2014/02/03/planning-for-an-uncertain-life-expectancy-in-retirement/#7f196e407c15
By Lisa Praschma, Chief Operations Officer, SWM
70 is the new 60why we need to plan for longer
(Performance over periods to 31 December 2016)
South African asset classes (in rands)
Asset class Indicator 3 months 1 year 3 years 5 years LT-average*
Equities All Share Index -2.1% 2.6% 6.2% 13.0% 12.6%
Property Listed Property Index 1.3% 10.2% 14.7% 17.3% 12.8%
Bonds All Bond Index 0.3% 15.4% 6.9% 7.3% 6.9%
Cash STeFI Call 1.7% 6.8% 6.0% 5.6% 5.9 %
Inflation CPI (one month in arrears) 1.0% 6.6% 5.7% 5.6% 5.0%
Source: Morningstar
Global asset classes (in dollars)
Asset class Indicator 3 months 1 year 3 years 5 years LT-average*
Equities MSCI AC World Index 1.2% 7.9% 3.1% 9.4% 10.0%
Property S&P Developed Property Index -5.0% 5.4% 7.0% 10.8% 7.0%
Bonds JPM Global Bond Index -9.3% 1.1% -1.3% -0.3% 4.5%
Cash US 3-month deposits 0.2% 0.6% 0.3% 0.3% 3.8%
Inflation US CPI (one month in arrears) 0.9% 1.7% 1.1% 1.3 % 3.1%
Source: Morningstar
Currencies
Currency Value at 30/6/2016 3 months 1 year 3 years 5 years LT-average*
Rand / Dollar 13.68 0.6% 11.7% -9.3% -11.1% -7.0%
Rand / Sterling 16.90 5.4% 26.0% 0.9% -6.1% -5.3%
Rand / Euro 14.42 6.7% 14.3% 0.0% -6.6% -6.7%
Source: Morningstar
* Updated annually from 1900, or longest available period | Returns for periods longer than 12 months are annualised.
Market Overview | Quarter 4, 2016The tables below provide a review of key local and international investmentindicators for the past quarter, as well as over longer periods.
4 | our expertise, your financial future
International
The major event of the final quarter of 2016
was undoubtedly Donald Trump's unexpected
victory in the US presidential election. This
regime change at the top of US politics
sparked a significant shift in performance
trends across most asset classes. Ahead of
the result, many thought that a Trump victory
would cause a bout of risk aversion, which
would hurt equities and benefit safe havens
such as government bonds and gold.
However, once Trump's victory was realised,
markets promptly did precisely the opposite
of those predictions. Investors chose to gloss
over worries regarding potential trade and
immigration tensions, and instead focused on
the likelihood that tax cuts, infrastructure
spending and deregulation would boost US
and global growth in 2017. Against this
background, interest rate expectations quickly
adjusted to reflect the increased likelihood
that the Federal Reserve would raise interest
rates at its December meeting. Janet Yellen
duly obliged on 14 December 2016 with the
announcement of a
quarter point increase.
Aside from the US
election, the other
noteworthy event of the
quarter was the late November OPEC-led
accord to cut global oil production in an effort
to boost its price. This was the first agreement
of its kind for over eight years, and the
successful outcome came as something of a
surprise to the market since many were
sceptical that the major players, such as Saudi
Arabia, Iran and Russia, could find enough
common ground to reach a deal. In response,
the oil price rose sharply, which boosted
inflationary expectations and added to the
growing pressures within the bond markets.
Over the period, economic and corporate
news-flow was generally positive. Reflecting
this trend, most economists pushed up their
forecasts for both GDP growth and inflation
in 2017. On the corporate front, third quarter
earnings announcements also exceeded
expectations, and, for the first time in over a
Issue 22 | January/February 2017
www.stonewealthmanagement.co.za | 5
Economic OverviewQuarter 4, 2016
For the period ended December 2016
The following market review looks at the performance over the past quarter of local andglobal asset classes, as well as currencies, and puts this into perspective relative to longer-term performance. The purpose of this review is to provide a context in which the performanceof the investment solutions in which you are invested can be assessed.
6 | our expertise, your financial future
year, the absolute level of earnings came in
higher than the comparable quarter in 2015.
These positive results effectively marked the
end of the US multi-national company
earnings recession, which had been largely
brought about by falling oil prices and a rising
US dollar. Equities rose by +1.2% over the
quarter, according to the MSCI All Country
World Index measured in US dollars. Among
the majors, the US (+3.4%) led the way, while
Asia ex Japan (-6.3%) and Emerging Markets
(-4.2%) were the most significant laggards. At
the sector level, cyclical sectors continued
to outpace stable earners. Rising commodity
prices boosted energy (+7.6%) and materials
(+3.1%), while financials (+12.3%) were helped
by a margin enhancing rise in longer-term
interest rates. Rising interest rates were a
significant headwind for the fixed income
asset class. A steepening of yield curves saw
sizable price declines in both government and
investment grade corporate bonds, especially
among longer-dated/more interest rate
sensitive issues. Over the quarter, the JP Morgan
Government Bond Index declined -9.3%.
Local
One of the key focus areas over the past
quarter was the review of SA's credit ratings
by the major ratings agencies. The
deterioration in the economic climate of the
country coupled with the unpredictable
political landscape caused market participants
to fear a possible downgrade. However,
following a review in November and
December, Fitch, Moody's and Standard &Poor's decided to retain their respective creditratings for SA's debt. Fitch retained SA's long-term foreign and local currency rating at onenotch above junk, revising its outlook fromstable to negative. Moody's retained SA'sgovernment bond rating at two notches abovejunk, with a negative outlook. Standard &Poor's reiterated SA's foreign currency ratingat one notch above junk but lowered the localcurrency rating to two notches above junk(both remain on negative outlook). Someconcerns were expressed by the ratingsagencies about the country's growth outlook,political turmoil, governance, and public debt.
The most recent release of economic growthfigures indicated that GDP growthdisappointed during the third quarter. SA GDPincreased 0.2% quarter-on-quarter, comparedto the second quarter where growth was morerobust at 3.5%. According to Stats SA thelargest contributor to growth was mining andquarrying (+5.1%), while the largest detractorwas manufacturing (-3.2%). Overall, SAeconomic growth is expected to be fairlymuted for the full calendar year. In hismedium-term budget statement, Pravin
Issue 22 | January/February 2017
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Gordhan decreased his 2016 economic growth
forecast to 0.5% from 0.9%. He also predicted
that growth would recover to 1.3% in the
following year.
Business confidence declined in the final
quarter of the year according to the RMB/BER
Business Confidence Index. The index declined
to 38 points from 42 points in the third quarter.
A reading below 50 points indicates a lack of
confidence from business sectors. There was
some improvement in the Purchasing
Managers Index (PMI) during November.
Despite this improvement, the most recent
figure suggests that business conditions within
the manufacturing sector remain constrained.
SA inflation increased to 6.6% year-on-year
in November - from 6.4% in October - marking
it the third consecutive month that inflation
has been out of the SARB's inflation target
band of 3-6%. In its most recent monetary
policy statement the SARB noted that there
is a higher degree of policy uncertainty due
to developments in the global economic
environment (US election and Brexit). This
could potentially present upside risks to the
inflation outlook. Nevertheless, the
committee decided to keep interest rates
unchanged at their monetary policy meeting
in November.
SA equities remained volatile during the fourth
quarter, declining -2.1%. For the calendar year
SA equities were marginally positive (+2.6%).
SA listed property fared better during the
quarter (+1.3%) and the year (+10.2%). SA
bonds had a fairly pedestrian quarter (+0.3%),
but ended the year strongly (+15.4%) as yields
declined from almost double digit levels at
the beginning of the year. SA cash delivered
a predictable return of 6.8% for the year,
broadly in line with inflation.
Issue 22 | January/February 2017
www.stonewealthmanagement.co.za | 8
talk to us
The Stone WealthManagement team
welcomes yourfeedback.
Email us [email protected] drop your feedback
into the box inreception.
68 Old Main Road, KloofPO Box 29275,
Maytime CentreKloof 3624
Tel 031 832 4555Fax 031 832 4550
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Co. Reg. no. 2013/020333/07
Stone Wealth Management is a
licensed Financial Services Provider
FSP 29494
You asked us!
From a tax savings perspective, what is themaximum amount that I can contribute
towards a Retirement Annuity?
In March 2016, National Treasury changed the way that taxdeductions are calculated on retirement contributions. Thetotal allowable retirement contribution limit was set at 27.5%of an individual's total remuneration or taxable income(whichever is highest) but is capped at R350 000 per annum.Any retirement contribution above this limit will not enjoyan income tax deduction.
did you know?The decision around your investment assets and retirementassets will be one of the biggest decisions that you will everhave to make. Choosing the right financialadvisor is therefore essential.
Do you have any questions that you would like answered?Email [email protected] and we will post the answerin the next issue.