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message from Daniël Kriel
- CEO of SPW
Sanlam Private Wealth
Apr 04, 2017
S&P announced it was lowering the long-term foreign currency credit rating from BBB- to BB+, while the long-term local currency rating was cut to BBB- from BBB. Importantly, the outlook remains negative. In addition, Moody’s also issued a statement yesterday that its sovereign credit rating of Baa2, two notches above junk, was under review.
The decisions by the rating agencies shouldn’t have caught anyone by surprise. Zuma’s latest shenanigans have placed a major question mark behind our country’s political stability, and therefore also the growth prospects of our economy – crucial considerations for the rating agencies.
What are the implications for financial markets, and our clients and investors?
First, our fragile currency has naturally come under severe pressure, as a result of capital withdrawals from South Africa. The rand remains the barometer of foreign investors’ view on the health of our economy, and since the Cabinet reshuffle, it has depreciated by 11%, a material decline.
Second, the downgrade in the credit rating would implicitly dictate to foreign investors to demand a higher premium to buy an asset that has just been tagged as higher risk. Over the past week, bond yields kicked higher and the capital value of government bonds has dropped by 4.8% – a massive value destruction.
Third, we have witnessed dramatic changes in the share prices of companies listed on the local stock exchange. However, the overall market has moved sideways and essentially retained its levels. On the positive side rand hedge shares have held up well and some have in fact strengthened on the back of a weaker currency. Unfortunately, the share prices of companies that rely predominantly on South African-based revenue have come under severe pressure. The two sectors most sensitive to rand weakness – banking and retail – have borne the brunt, with the SA Bank Index losing 14% of its capital value.
Of course we can’t ignore the psychological impact and stigma of our country having its debt associated with ‘junk’ – a term that doesn’t sit well with any self-respecting nation. We will now also be associated with countries that have a track record of economic mismanagement and the reputation of being a high-risk investment destination.
The performance of our clients’ portfolios amid all the uncertainty has been resilient. Although we do have some exposure towards more South African-focused companies such as banks and retailers, our house view equity portfolio is still weighted towards companies that earn the bulk of their income outside South Africa. We therefore expect our portfolio to hold up better than the JSE All Share index should the rand deteriorate meaningfully in the coming weeks.
Our balanced portfolios currently have virtually the maximum offshore exposure allowed in terms of Regulation 28 of the Pension Funds Act – 25% – and we have no intention to amend this ratio in the short term.
Amid all the political uncertainty, our approach to actively managing portfolios has not changed. Our transactions in the portfolios will remain dictated by price. In fact, if irrational investor sentiment succeeds in driving the prices of quality shares down, we will make use of the opportunities created and consider adding them to our portfolios, despite the fact that the rand may lean on some of these prices for some time to come.
So, where to now for South Africa? The political drama of the past week and the decision by S&P have the potential of derailing the sterling efforts over the past months by business to support the efforts of Treasury and our former Finance Minister Gordhan. This has now changed, and the role of business, and all reasonable South Africans, has to be to protect our key institutions and the broader economy. Sanlam is actively participating in various forums involved in this – including organised business and the CEO initiative.
We will watch developments closely over the next couple of weeks and will continue to provide support to the economy, our clients, and actions aimed at protecting our young democracy.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
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Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.