Counting the cost of the cabinet reshuffle and credit rating downgrade on local investment returns

Investors will be concerned over the recent news of the ‘authoritarian’ cabinet reshuffle and consequent credit rating downgrade from S&P on the 3rd of April. This has important implications for all asset classes, and therefore prospective investor returns. This comment aims to provide some insight for investors to help understand how it will affect their investments.

What has happened thus far:

  • A major reshuffle in cabinet ministers seen as a destabilising move by the government. Primarily this drives uncertainty on economic policy, and the stability of state institutions (e.g. Eskom). Increased uncertainty increases the risk attached to South African linked investments, typically resulting in a fall in prices (and therefore returns).
  • The currency as well as government bonds and local dependent shares (like banks) have sold off to reflect worsening prospects. This impacts most investors.

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Emerging Markets in 2017: effects of new Washington administration

There’s quite possibly never been such a divide amongst people on their opinions of one man – Donald Trump. It’s hard to be neutral. It’s hard to believe that media is unbiased and it’s hard to imagine Trump as an inspirational humanitarian.

However, already on the back of his election, the markets have taken a positive swing, believing that lower company tax and greater business stimulation will be good for America. And make no mistake – what’s good for the US economy is generally good for everyone.

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The Stock Market: why aren’t we learning this at school?

The driving energy of economies is the stock market. It underpins our savings, investments, pensions, policies – in fact our very lifestyle, standard of living, achievements, aspirations and everyday experience. It is the engine of development, business, progress and the creation of wealth. It is the wheel of fortune, the genie jar and sometimes the deadly game of Russian roulette. But whichever way you look at it – it dictates our experience of life in one way or another. It is fundamental to how we have set up our monetary systems in the world.

So why isn’t it taught at school?

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Does money exist

Money: does it really exist?

“Even though the number of dollars in the world are real and finite, the value we assign to those dollars is completely arbitrary. It changes all the time.” ~ Sean Edwards, author, speaker, political thinker.

So the answer to the question is a quick no, it doesn’t exist. Money is something we made up in order to create a standard value for controlling barter and trade. And without it, life would become very complicated.

If you’re a shoemaker and need clothing, then you might trade shoes with a shepherd for wool. However, if the shepherd doesn’t need shoes but dog whistles, then you have to find someone who makes dog whistles who is needing shoes – all before you can get the clothes you need.

So because trading one product for another would became cumbersome, we invented a tool of exchange which could easily represent an agreed value, and be used as an acceptable leverage for moving goods around.

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Material Things: the investment value of possessions

Buddhists say that material possessions get in the way of reaching greater understanding of ourselves. There are probably some psychiatrists who might agree. But despite philosophy and advice, possessive desire is deeply entrenched in our psyche; older than history and part of the very foundation of being human.

Over a hundred thousand years ago, shells and stones became coveted and worked into objects of beauty. Ultimately these artifacts and their consequent trade value laid down the basis of all economies. Today, whether you buy property, art, collectibles or jewellery, you are investing in the security of physical objects as a steady alternative to the sometimes erratic performance of the stock market. Some people become master collectors, cannily purchasing objects of the past to shore up the future. Certainly, if you know what you’re doing, physical possessions may well enhance the security of your investment portfolio in uncertain times.

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