Simple – But not Easy!

The month of October ended on a sombre note for South Africans as Finance Minister, Tito Mboweni, delivered his second Medium Term Budget Policy Statement on Wednesday, October 30th.

The Market reaction to his dire warnings that South Africa approaches the proverbial “Fiscal Cliff” (where the country’s debt-servicing and interest costs exceed our abilities to pay them) were swift and severe, topped off with Moody’s lowering their outlook on the Sovereign’s credit rating from ‘stable’ to ‘negative’. And while Moody’s may hold our credit rating at Baa3 with a negative outlook for as long as 18 months, it is a stern and unequivocal warning to lawmakers that if matters are not swiftly turned around, their next assessment will be a downgrade of the rating, bringing with it a barrage of fallout and negative consequences for the country, our currency, markets and our personal finances.

All in all, it’s actually very simple – we either cut our spending or grow our economy enough to mitigate big spend. We are currently doing neither, hence the cliff approaching and Moody’s sentiments and ratings of us.

And while October was a broadly positive month for markets as Global economies continued to ease Monetary Policy and lower interest rates, global stock markets traded at record highs towards month-end. The weaker Rand supported Rand-hedge shares on the local JSE All Share, and our overweight positions to Global equities pushed the Octagon portfolios to similar highs. The coming weeks will be seminal in our analysing and re-evaluating the portfolio strategies to mitigate the macro-economic risks into the future – while the Octagon Funds have performed admirably over this period, we are continuously engaging with the underlying managers and strategists to ensure we continue to do so.