TVC Investment Insights

Insights into 1st Quarter of 2018

What happened?

US-China Trade War

Trade War
China VS USA Trade War

A trade war is when countries try to attack each other’s trade with taxes, import duties and quotas.
US and China are currently engaging in a “pre-trade war”.
Trump is threatening to impose a 25% tariff on certain Chinese products like flat-screen TVs,
medical devices, aircraft parts and batteries. The reason for this is that Trump believes that China is stealing American intellectual property,
by copying designs and product ideas.
China retaliated with a threat to impose a 25% tariff on US products like cars, airplanes and soybeans.
Negotiations is still on-going and is causing tension on a global scale, seeing that most countries are dependent on the economies of these two trade Giants.

          How this affects you:

The top three shares on the JSE (Naspers, Billiton, Richemont) accounts for 35% of the index.
These shares have one thing in common: They depend on the Chinese consumer
Therefore, the JSE All Share Index will be impacted by any volatility caused by the US-China trade war.

Ramaphoria

Cyril Ramaphosa
Cyril Ramaphosa

South Africans are constantly experiencing either hysterical pessimism or hysterical optimism.
The election of Cyril Ramaphosa as president has created the latter for the South African consumers.
Business confidence levels are high. This positive incentive has also resulted in a strengthening of the Rand.
Since election, President Cyril Ramaphosa has made wide-sweeping changes to his cabinet.
His aim is to undo the damage done by minister elected by his predecessor, Jacob Zuma.
“Ratings agencies are more positive and international investors are not as bearish.
However, they want to see evidence of structural reform – sentiment is not enough.” – Aubrey Matshiqi (Political Analyst) at the Sanlam i3 Annual Summit.

          How this affects you:

It is important to balance your expectations between the two extremes of pessimism and optimism.
Most Asset Managers believe that the Rand is currently overvalued.
They expect a fair value of R13-R15 to the US Dollar.

Europe: Italy

In March, Italy held general elections, which led to two wins by:
5 star movement (M5S), and
League
These parties formed a coalition and were sworn into government on Friday 1 June 2018.
This populist government believes in protecting their people.
Fear exists that Italy might decide to leave the European Union, which can influence other countries to follow.

          How this affects you:

The stability of the European Union (EU) will impact the import and exports between the EU and South Africans.
Developments will need to be monitored to determine the impact on South Africa.

Naspers

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Naspers

Naspers reduced their share in Tencent, China’s biggest internet firm, from 33% to 31%.
This provides them with $ 12 billion to invest in other ventures.
On the 24th of May Naspers’ Classifieds business, OLX Group, invested $89 million in Frontier Car Group.
They are a Berlin-based start-up who develop, launch and operate used-automotive marketplaces in six countries.
Frontier Car Group plans to use the funds, as well as access to OLX Group’s global footprint in high growth markets,
to fuel its expansion into new territories and enhance its instant cash services for users.

          How this affects you:

Naspers’ share makes up 21% of the JSE All Share Index.
Any fluctuations in the price of Naspers has a direct impact on the JSE All Share Index.
Most funds are invested in Naspers.
It is important to be aware of the impact Naspers has on your investment portfolio.

Resilient

Resilient is a Real Estate Investment Trust (REIT) listed on the JSE.
It owns a portfolio of dominant regional malls and shopping centres mostly situated in non-metropolitan areas.
The group’s management has been accused of share manipulation in numerous reports.
These reports suggest that share prices have been kept artificially high by a series of secretive trades by people closely related to the group.
These allegations resulted in a drop of 40% in Resilient’s share price.

In the past, listed property has outperformed all other local asset classes.
Because of this, property funds have dominated the unit trust market.
So far this year, however, the listed property sector has been the biggest loser.
This is largely due to the decrease in share price of Resilient.

          How this affects you:

Most property funds had, or still have some exposure to Resilient.
Some of the biggest losers include:
ABSA Property Equity Fund A (-28,47%)
STANLIB Property Income Fund A (-20,17%)
Be aware of your exposure to property within your investment portfolio and discuss this with your adviser.

What are the experts saying?

Over this first quarter, we have attended various seminars and sit-down discussions with investment managers.
Here are some of their inputs:

InvestecStanlib    Allan GrayKagisoSanlam 

Investec’s Clyde Russouw at the Investment Forum on 5th of March 2018:

Short-termism is a reality. Investors are obsessed with short term trends.
The best long-term security is in quality companies.
For SA investors, diversification in asset classes is key.

Stanlib’s Kevin Lings & Marius Oberholzer at the Investment Forum on 5th of March 2018:

The environment can and will change.
Be prepared for change and have a strategy to cope with change.
Focus on the controllable factors – Asset Mix, Investment Behaviour and Liquidity

Kagiso’s Gavin Wood at the Investment Forum on 6th of March 2018:

Unsustainable momentum is fuel by irrationality
He identified the following cognitive biases
The availability heuristic – Tendency to overestimate the likelihood of events.
The availability cascade – Collective belief gains more and more plausibility through its increasing repetition.
The band wagon effect – Tendency to do something because many other people do.

Allan Gray’s Earl van Zyl at Allan Gray Business & Investment Update on 1st of June 2018:

Equities are experiencing big draw downs.
However, this increased volatility creates increased buying opportunity.
It is important to consider that different asset classes will perform differently over different periods.

Sanlam Global Investment’s David Itzkovits at Sanlam i3 Summit on 22 May 2018:

Artificial intelligence (AI) provides revolutionary solutions to the investment world.
Clients can diversify their portfolios by adding an AI managed fund.

What can you do?

Before investing, you must decide on the following:
          Risk Tolerance (Your ability to ‘stomach’ market volatility)
          Term & Liquidity (When will you need the money?)
          Goal (Are you seeking Capital growth or Capital Protection)

Once this has been decided, sit with your financial planner to formulate an investment strategy, with the following considerations:
Diversification over different asset classes (Equity, Bonds, Property, Cash, etc.)
Exposure to Local and Foreign Assets
Fund Selection – Track record of the investment team & The fees they charge

Have clarity over your strategy and understand how it aims to achieve you goal.
Do not try to time the market – It is a fool’s game.
Stick to your strategy and do not react emotionally to short-term factor that you cannot control.

Find a good financial adviser and stick with them.

Should you want to discuss your investment portfolio, contact us for insights, clarity and transparent advice.

TVC

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