It’s been an incredible six days, with every South African asking serious questions about our present and future, amongst headlines of a tumbling currency. Not one financial affairs or political expert has held back when it has come to our President’s recent decisions.
First, on Friday, Karl Leinberger from Coronation said that “clients will by now be aware of the shock removal of Nhlanhla Nene as Minister of Finance on Wednesday. The market’s reaction has been decisive and brutal, with the currency selling off by 9%, Government bonds by 12% and local banks by around 20%.”
Then on Monday, economist Cees Bruggemans spoke of “the rather unexpected course of events late Sunday night, as Zuma ‘reconsidered’ his decision to fire Nene, and reappointed Pravin Gordhan, who in his opinion should never have been replaced last year with a presumably more pliable Nene as Finance Minister.” According to Bruggemans, “the background to these unprecedented Zuma moves (firing Nene, reappointing Gordhan) remained murky. Zuma’s corrupt infrastructure dealings and intentions had been an open book for years, with deputy-president Ramaphosa getting a front row look-in. With Ramaphosa working closely with Nene on the SAA deal, and Nene’s relationship with Zuma reportedly for months, breaking down, one can sense the opportunities,” he said.
What does all of this mean for me?
At the time of this writing, the impact on many of your portfolios has been very small. For many years, we’ve said in our newsletters and to our clients that the way to protect yourself is diversification. That is what has helped us in these very volatile times.
This episode has once again illustrated the importance of both being diversified and having a long term view in line with your financial plan, as David Mohr of Old Mutual says. In terms of the latter, a knee-jerk reaction to last week’s events would likely have done damage to long-term financial goals. A diversified portfolio would probably have weathered last week’s storm, as the foreign component would have done well while the rand weakened. Within the local market, there was a big divergence in the performance of industrial shares on the one hand and financial and resources on the other.
As we see it, the saddest part of the events of the past week is that Zuma has done severe and possible irreparable damage to South Africa. It is an incredibly difficult time for an emerging market that depends on commodities, a country that is suffering from one of the worst droughts in years and a looming economic downgrading, which will increase the cost of borrowing for the country.
What can I do?
It’s certainly far from rosy right now, and much of South Africans’ frustration is based on their feeling of powerlessness. We believe it’s important to know that there is something we can all do about it. What each of us does or doesn’t do though is very much a matter of personal choice. If you feel you want to get vocal and show your protest, then do so. How you react on an emotional level is completely up to you.
However, when it comes to your finances, remember that you can only control the controllable. We believe that the best way you can do this, as investors, is to continue on the same steady course.