Posts Tagged ‘ Stock Market ’

Certainty in uncertain times for South Africa

We are facing an unprecedented time in South Africa and people are looking for something to hang their hopes on. Just last week Moody’s downgraded South Africa to sub-investment level while Fitch’s downgraded 5 of SA’s top banks to BB+. What does this mean for the average South African caught in the disarray of the ongoing COVID-19 crisis?

There were a few silver linings post-Budget Speech such as no increase in personal taxation, a lowered interest rate along with low oil prices globally (and the cascading benefits of that) and just recently, a debt reprieve, from banks and lenders, for consumers.

These unprecedented times are forcing the hand of the Government and we hope, with that, concrete solutions coming to fruition whether that be much needed fiscal reform in the likes of the recently announced Vulindlela Unit (established to spearhead structural reform), a reduced public sector wage bill or further interest rate cuts. The current COVID-19 crisis has certainly taken the foot off the gas when it comes to the great debate around State-owned Entities; perhaps Government may be forced to close down or at least, sell off some of these ailing SOE’s.

The COVID crisis has certainly shown the Government, private and public sectors can act cohesively and decisively however the real fruits of this labour will only be seen in time to come. The other glimmer of hope is that the collective efforts may pave the way forward for a broad-based, inclusive, accessible and feasible national healthcare system.

Investors have been pleasantly surprised by SA’s swift and decisive action in a bid to avert a potentially overwhelming health crisis – some say we have beat our European counterparts, who are now in the midst of an overwhelming health battle, to the mark.

Our immediate future is one of safeguarding South Africa from following the same harrowing COVID trajectory seen elsewhere. This means greater efforts are needed in it rolling out mass mobile testing and much-needed medical PPE. That aside, our long-term future will most certainly be about propping up our deflated economy once this is over and the individual South African will be wondering where to put his money right now, how to grow his wealth or how to safeguard it. Share markets are far too volatile with the megaliths, like Steinhoff and SASOL, having crumbled. What’s more is a return is not guaranteed and share value is beholden to forces beyond our borders. Buying shares requires a liquid cash investment which is something many just don’t have right now.

“People who were looking to move money offshore are now rethinking their moves and with that, will be looking for other investment vehicles within South Africa. Many people don’t have the appetite for risk that comes with investing in the stock market- especially older folks of retirement age, in fact many are likely to be actively minimising their exposure here.” Shares Charles Thompson, Director of Devmco Group.

Property has proved to be a stable asset in recent times, as Thompson explains: “At the moment banks are offering some loan and credit amnesty to people and there looks to be another interest rate drop on the cards, so conditions are good for lending or getting a home loan. There has been a lot of activity in what is deemed the affordable market- that is properties valued up to R3 million.”

The age old wisdom of ‘location, location, location’ still rings true and should be the first factor to consider when investing in property, especially locations that offer that blended lifestyle which seems to attracting the market more and more as time goes by.

“Location always comes first when deciding where to invest- freehold home prices are pretty much stagnant too and more than ever people are looking to get into estates and with so much available, and more coming onstream across the price range, people will have ultimate choice; therefore location is key.”

Property that is well located will see good capital growth and a potentially good rental return as well. Property priced at R2.5 million, with a 10% deposit can earn capital gains of 8% per annum and a potential 5-7% overall on the value of the entire asset, Thompson expands further, “Off-plan property is a good idea as the initial capital investment is low and the potential for growth on the market value of asset is there, especially between deposit and when you take transfer. Once your property deposit is paid you can have as much as 2 years of capital appreciation on your purchase without having to put down the full bond value.”

With another interest rate cut a possibility, Thompson believes there will be a spike in property acquisition and is bullish about the local property market, “Right now there is no safer investment option than property ; stocks are too volatile, and the global economy is not helping the stock markets either. In KZN we know that seaside homes hold their value, but one cannot overlook things like security, service infrastructure, roads and facilities and the value of a blended lifestyle or live-work-play lifestyle; to buyers these are now non-negotiable.”

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