Playing the long game

Have you ever seen those cartoon drawings on the roof above your dentist’s chair? You know, those ones with a beach or picnic scene with so much going on, all at the same time, seemingly designed to keep your mind away from his incessant drilling?

Well, in some ways I feel that accurately characterises the last six months in South Africa. There has been so much news; some good, some not so good, some absolutely phenomenal and some, well, some challenging news.

Six months ago, much as we all desperately wanted it to happen, few could have believed that President Cyril Ramaphosa would beat Dr Dlamini-Zuma in becoming president of the ANC. Who would have believed that the Republic of Zupta did not have a Plan B? Yet, albeit by the slimmest of margins, Mr Ramaphosa did indeed become the president of the ANC and subsequently our State President, although that too looked unlikely for a while. The very next day after Mr Zuma’s resignation and Mr Ramaphosa’s appointment as president, the JSE jumped by more than 4% and all seemed right with the world!

Yet, when we look at our local investment portfolios, the last few months have been very challenging. As investment advisors, we are frequently asked the following two questions: 1) From an investment standpoint, why have the last three years have been so difficult and 2) with the current level of volatility, would it not be wise to just wait it out in cash and then come back into the markets when they settle down and start to climb again?

I think it is important for investors to review and truly understand the events of the last few months, and more specifically, how they have affected markets and investment portfolios.

From December 2016 to November 2017 the rand was fairly stable. It was weak, but stable, and the JSE grew by more than 20%. The JSE’s fantastic growth was largely due to this weaker rand, and was aided in no small measure by one single stock, Naspers.

Our portfolios all enjoyed fantastic growth during this period. Notably, investors’ returns were less heady than the JSE’s growth, largely due to the massive weighting that Naspers had in the market. But in December 2017, the markets began to nose dive. First, we got hit by the Steinhoff scandal, where even though our portfolios had minimal exposure, the collateral damage to the markets could not be avoided. Then, as it became likely that Mr Ramaphosa could mount a serious challenge to Dr Dlamini-Zuma, the rand began to strengthen, pulling the JSE back with it.

As a result, since the beginning of December, the rand has strengthened some 20% against the US dollar. The much-anticipated State of the Nation address filled us all with hope, but also raised the land expropriation without compensation issue, which has dominated headlines and indeed, our emotions, for the last few weeks.