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Roll up your sleeves! It’s time for the jab.

Jan 27, 2021 | General, Market & The Economy | 0 comments

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For many of us, 2020 was an extremely difficult year, filled with loss and uncertainty. The renewed outbreak meant that the Festive Season was far from merry for many of us, but we can hopefully start looking ahead to better days. For some, 2021 will be about rebuilding, while for the more fortunate, it will be a case of building on the successes of the past year.

Of the many things that stood out in 2020, the resilience, adaptability and innovativeness of human beings must be top of the list. The amazing speed with which scientists developed vaccines was also in this spirit. As you read this, several million people have already been vaccinated against a disease that was only officially named in February 2020.

It was news of the vaccines that drove markets higher in the final quarter of last year, as these will enable the economy to gradually recover as restrictions are lifted.  The vaccine roll-out in SA will be a long process, but local markets will continue to take their lead from what happens globally, rather than in response to local politics.

When traders in London or New York feel optimistic about the world, they buy the Rand and other emerging market currencies. In uncertain global times, they sell riskier assets (including emerging market currencies) and buy “safer” US dollars. Thus we saw the Rand collapse in March and April to just over R19 to the US Dollar, recovering strongly to R14,64 at year end, although slightly weaker than the start of 2020 (a decline of 4.5% for the full year).  The Rand will remain vulnerable this year, with progress yet to be made in reducing rising government debt levels. 

Clearly the rand is never a one-way bet, and therefore portfolio diversification remains prudent. It has become fashionable to say local investors should take every last cent offshore, but such an all-or-nothing attitude assumes perfect foresight. Spreading the risk is more sensible, particularly when your expenses and liabilities are in Rands.

The other point to highlight is that investors earned more from the equity market in November and December than they would have from a whole year in the money market. That is where patient investing is so important. Over the long term, equities beat cash because of such extraordinary months. Unfortunately, no-one can predict when these months will be.  

While it’s still summer and we can imagine a return to live sporting events in a vaccinated world, a cricketing analogy seems appropriate.  Equities is the player that hits fours and sixes, and you need these to build a big total. But for several overs, you can get nothing, and sometimes you lose a wicket. On the other hand, cash gives you a single off every ball. It is safe and steady, but not enough on its own. Again, the trick is to field a diverse team that can perform under a wide range of conditions.

Here’s to 2021.  Stay safe.  



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