Resilience & Self-Reliant Strategies in SA
F&A Monthly Update | May 2021
Each fresh serving of rolling blackouts triggers the same reflex. It’s upsetting. We can feel our confidence in South Africa’s leadership reverse just a little bit more. The testing part of it all is we’re into year 14 of this with no short-term end in sight. There is talk from de Ruyter (Eskom CEO) that this could continue for a further 5 years. In my experience, complex projects almost never complete within the estimated time and so 5 years is debatably dreamy. So where does this leave us?
From an Asset Management Perspective
We have purposefully built out a solution that gives our South African clients flexibility and options:
Our South African Portfolio Suite
This covers the majority of investment vehicles South Africans hold – discretionary unit trusts, RA’s, pension / provident fund preservers. As covered several times in our previous comms, we have down weighted our allocation to South Africa, notably SA Equity, while being selective even when investing in this space. These adjustments occurred in varying degrees across all our local portfolios over the course of the last few years. In its place is largely Global Equity. This is a calculated hedging of the risks that are in play. For full details here, please drop us a mail and we will provide you with our historical adjustments.
Our Offshore Portfolio Suite
For clients wanting to or requiring further hedging, or for our global clients that share their time between SA and other jurisdictions, we have spent a good deal of time building out and integrating completely offshore solutions. These are largely USD or GBP based, and have seen us move money directly offshore, into efficient jurisdictions such as Guernsey, Isle of Man and Bermuda and from there, investing truly globally. These assets have zero SA holdings and are designed to completely delink from SA. A further benefit is that these assets can pay to any of our client’s offshore bank accounts, allowing them complete global movement.
As a result of the care given to our local solutions, along side our global, we are well positioned to protect our clients not just from local risks and challenges, but global ones too. Yes, we are also unhappy about the leadership in SA, but it doesn’t mean we can’t plan for and manage these risks effectively.
From a living in South Africa Perspective
This is a wildly emotive discussion that can really polarise. As with all things, I believe everyone is entitled to their beliefs, and wish them only the best on the path they choose!
My personal view is hinted into above. I want options going forward, and I want to be protected today. My overwhelming first prize is to stay in SA and close to those I love, but we also need to be real about it. Where I am massively confident is that business today is truly global and so regardless of where you physically sit, I see no reason why you can’t do business with anyone in the world, in almost any currency. South African’s are already doing this, and this is a play that must absolutely be sought. Fleuriot & Associates can run from anywhere in the world that is connected to the internet. This delinks me personally and gives me options. Not that I want to pursue this right now, but it is useful to have should it be needed.
From an actually living in SA perspective, I am of the view that South Africans will become more antifragile with time. More independent, more resilient. I suspect we will see an increase of insular communities, which sustain themselves by working together and doing business globally. I am busy working on a research piece which weighs up the benefits of investing in solar. Battery prices, which make up the most expensive part of a solar solution, have decreased 88% in price over the past decade. Given the above rolling blackouts, there is a possibly a case for moving invested money into solar. Perhaps a compromised solution of generators or inverters could be sufficient.
Beyond this, I think South Africans are resilient! We have always adapted to changing risks; think housing communities; think security and neighbourhood watch; think schooling; think medical.
There are definitely ways to design a great life in SA, but unfortunately, they aren’t being handed to us on a silver platter. We will need to continue with a bit of elbow grease!
May 2021 Update
This month's piece is compiled by Brendan de Jongh, SA Head of Research - PortfolioMetrix.
Local Update
South African equities and bonds performed strongly for the month with South African bonds the best performing asset class. Unfortunately, the financials bounce in the equity market did not take hold in the SA property sector with it being the worst South African asset class for the month. Global asset classes all fell in rand terms on the back of a stronger currency suppressing returns in local currency terms.
Mid and small cap stocks in South Africa continued their charge, comfortably outperforming the large cap segment of SA equities.
Global Update
May saw strong economic data overall, although there were also concerns around the chance of inflation running hot and central banks prematurely tightening monetary policy. So far modestly higher inflation and improved global growth prospects have benefitted ‘Value’ companies rather than ‘Growth’ companies again this month – a trend of this year which had unwound somewhat last month. On the COVID front, daily cases have fallen in the two countries that had more alarming figures in April – India and Japan. In general, there were broadly positive market movements in equities (in local currency) and fixed income alike.