Quarterly Update June 2019

After a great first quarter in 2019, investment returns have disappointed during May.

We all hoped that the investment markets would respond positively to a strong election result for Cyril Ramaphosa, but there is a far bigger influence on global markets and that is the Trump initiated trade war between the United States and China.

As we have mentioned before, South Africa is a small market in the context of the world and local politics do not have such a great effect on our investment returns.

The United States is the biggest economy in the world and their politics have a much more significant influence on global markets including South Africa. President Trump is indicating that he plans to impose additional tariffs on Chinese imports into the United States.  All this has a negative effect on global markets particularly emerging markets such as South Africa.

Another major global factor is Brexit. While not having as big an effect on global market as Trump’s trade war with China, it does have a significant effect. Markets do not like uncertainty and the drawn out Brexit negotiations represent uncertainty. This was aggravated by the UK Prime Minster being forced to resign – more uncertainty.

The last major influence on global markets was a significant decrease in the price of oil; this was a consequence of the trade war outlined above. If the trade war continues for a lengthy period it could cause a global economic slowdown, thus decreasing demand for oil.

The decrease in the oil price had a negative effect on South African oil company, Sasol as an example.

While emphasising that global economic and political factors have a greater influence on South African investment returns than local factors, one positive event this week was the announcement of Cyril Ramaphosa’s new cabinet.  While neither being as lean, nor quite as clean as we had hoped for, the retention of Tito Mboweni as Finance Minister and Pravin Gordhan as Public Enterprises Minister was well received by the market.

Our asset consultants, Fund House, generally retain what is termed an “overweight offshore” position in all our model portfolios.  In simple language this means that your offshore exposure is greater than your local exposure.

Peter Foster


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The Cyril Effect

The political landscape in South Africa is changing by the day. As I write this, the State of the Nation Address has been postponed for the first time in our young democracy, the ANC National Executive Council has set up, and then subsequently cancelled an emergency meeting, rumours abound that Zuma is on the verge of resigning and uncertainty is the order of the day. The stock market, South African bonds and the currency have been volatile and everyone appears to be waiting for what is coming next.

While one should be very careful of reading too much into politics when assessing markets and it is exceptionally difficult to make a call on these short term outcomes, we try to look through all the news flow and assess what is likely to be our reality in the medium to long term in South Africa. The election of Cyril Ramaphosa as ANC president in December last year has provided large sections of the South African populace with a sense of optimism and hope for the future. A hope that he can provide the leadership that the country needs to combat corruption and manage the economy in a sensible manner to ensure growth. On a medium to long term view, it is safe to say that South Africa finds itself in a better position post his election.

While the positivity is not unfounded, the reality is that the starting point for any recovery is not an ideal one. Ramaphosa takes over at a point where there are numerous challenges facing South Africa’s economy – corruption is endemic, growth is negligible, debt levels are rising and unemployment remains our core challenge. The change in leadership doesn’t result in any immediate improvement in any of these issues and implementing the various changes will require much hard work in the short term to deliver on that medium to long term potential.

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Interest Rates, News and Fake News

So last week, the Governor of our Reserve Bank, Lesetja Kganyago, surprised the great majority of the countries Economists by decreasing interest rates. While the decrease was nominal at 0.25%, the impact on our country’s battered fortunes was great. The Reserve Bank and the judiciary are the only two remaining strongholds between South Africa and a Banana Republic.

The steadfastness and bravery of our Constitutional Court, our High Courts and their dedicated judges are well documented. Lesetja Kganyago’s steadfastness and bravery is less well-known but equally important. Despite a spirited act from a Public Protector that we can only assume to be captured, Kganyago has stood firm. In other African countries, so called Presidents (more appropriately, dictators) have tended to attack their Reserve Banks first. In our case the predators attacked state owned enterprises because they appeared to be easier targets and because, in other African countries, state-owned enterprises did not have the same quantum of assets or level of revenue.

Traditionally a decrease in interest rates signals a need to give an economy a boost. In South Africa’s case, it will have very little impact because there are so many other major factors negatively affecting our economy: the trust between government and the business sector has broken down completely; the state-owned enterprises are a complete mess and heavily indebted; and foreign direct investment has dried up. There are many other factors but these are the main ones.

Against this background we all have to distinguish between fake news and news. Some of the fake news has been completely exposed by the leaked Gupta emails. Take the White Monopoly Capital as an example. On the other hand, genuine news is the announcement of such things, as an interest rate cut. In between, there will be fake news that is harder to detect than Bell Pottinger’s ill-conceived White Monopoly Capital. So, be on standby for dirt to be dug up on Cyril Ramaphosa and Lindiwe Sisulu. The general rule of thumb would be not to believe any of the so-called dirt, which is dug up on these or other high profile politicians.

What does all this mean for your investments? The road ahead is indeed uncertain. Technically, the decrease in interest rates is usually a boost for shares and since the interest rate cut, this has indeed been the case.

Uncertainty, however, will be the overriding factor and the most important thing in the next six months will be diversification. Diversification counteracts uncertainty and provides something of a moat around your investments.

Peter Foster,

24 July 2017

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Our Involvement with Petals Care

Petals Care Centre (owned by the PETALS TRUST) was established in 2014 by founding member, Christine Coelho. It provides a secure facility for elderly men and women who are destitute, to enjoy peace and independent living within a safe environment.

Their latest residential premises in Riviersonderend were purchased in 2016 and accommodate 16 residents who:

  • suffer from dementing illnesses;
  • are destitute from families;
  • need access to proper personal care;
  • suffer from sensory or physical disabilities;
  • are victims of domestic violence.

It is our joy to manage the financial statements for Petals Care Centre, absolutely free of charge.

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2017 Taxation Update


The maximum marginal rate for natural persons is increased to 45% (previously 41%) and is reached when taxable income exceeds R1 500 000.

The minimum rate of tax remains at 18% on taxable income not exceeding R189 880.

The primary rebate for all natural persons has been increased to R13 635 (previously R13 500). The additional rebate for persons aged 65 years and older is increased to R7 479 (previously R7 407). Persons aged 75 and older are granted a further R2 493 (previously R2 466).

The tax free portion of interest income remains at R23 800 for taxpayers under 65 years of age, and R34 500 for persons aged 65 years and older. In addition the tax-free savings dispensation for other investments, including collective investment schemes, became operative 1 March 2015 and is R33 000 (previously R30 000) per tax year.

Local dividends tax is increased to a flat 20% rate (previously R15%), effective 22 February 2017.

Foreign dividends are also to be taxed at a flat rate of 20%, however, this may be reduced in terms of Double Tax Treaties.

An individual is exempt from the payment of provisional tax if the individual does not carry on any business and the individual’s taxable income…

  • will not exceed the tax threshold (see 4 below) for the tax year, or
  • from interest, foreign dividends and rental will be R30 000 or less for the tax year.
Taxable income (R)Rates of tax
0 – 189 88018% of taxable income
189 881 – 296 540R 34 178 + 26% of taxable income above R 189 880
296 541 – 410 460R 61 910 + 31% of taxable income above R 296 540
410 461 – 555 600R 97 225 + 36% of taxable income above R 410 460
555 601 – 708 310R149 475 + 39% of taxable income above R 555 600
708 311 – 1 500 000R209 032 + 41% of taxable income above R 708 310
1 500 001 and aboveR533 625 + 45% of taxable income above R1 500 000

Individual Tax Thresholds

Liability for tax is as follows:
Under 65 yearsR75 750(previously R 75 000)
65 to 74 yearsR117 300(previously R116 150)
75 years and olderR131 150(previously R129 850)


The flat rate increases/d to 45% (previously 41%), although distributions in the same tax year are taxed instead in the beneficiaries hands.

Estate Duty and Donations Tax

The rate of estate duty and donations tax remains at 20%.

The estate duty abatement (exempt threshold) remains at R3,5 million per person and a surviving spouse may also benefit automatically from any unused deduction in the first dying spouse’s estate, i.e., the abatement remains a combined maximum R7 million for the second dying spouse.

Estate pegging through the use of soft loans to trusts are under review. Proposals are that the asset growth in the trust be included in a deceased estate and that interest free loans to trusts be treated as donations.

The first R100 000 of amounts donated in each tax year by a natural person remains exempt from donations tax. Donations between spouses are fully exempt.

Capital Gains Tax (CGT)

  • The annual capital gain exclusion for individuals increases remains at R40 000.
  • The primary residence exclusion from capital gains tax remains at R2 million.
  • The capital gain exclusion at death remains at R300 000.
  • The effective rate of CGT is the range of 7.2% to 18% for individuals, 22,4% for companies and 36% for trusts, although correctly structured trusts can result in the individual rate being applicable.

Retirement Funds (The tables remain as before)

Retirement Fund Lump Sum Withdrawal Benefits

Taxable IncomeRates of Tax
0 – 25 0000% of taxable income
25 001 – 660 00018% of taxable income above 25 000
660 001 – 990 000114 300 + 27% of taxable income above 660 000
990 001 and above203 400 + 36% of taxable income above 990 000

Retirement Fund Lump Sum Retirement Benefits or Severance benefits

Taxable IncomeRates of Tax
0 – 500 0000% of taxable income
500 001 – 700 00018% of taxable income above 500 000
700 001 – 1 050 00036 000 + 27% of taxable income above 700 000
1 050 001 and above130 500 + 36% of taxable income above 1 050 000
  • Tax Harmonisation of Retirement Fund Contributions As from 1 March 2016, all retirement funds (pension, provident and retirement annuity funds) are treated similarly for tax contribution purposes. The tax deduction formula of 27,5% per annum (with a cap of R350 000) of the greater of taxable income and remuneration applies to members of all retirement funds, including provident funds.
  • Annuitisation Pension and Retirement Annuity (RA) Funds will still require a compulsory annuity purchase upon retirement with two-thirds of such fund benefits whereas Provident Fund benefits may be commuted in full, until 1 March 2018. The threshold below, which a full fund benefit from a Pension or RA is allowed to be commuted, is R247 500 effective 1 March 2016.
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