SIMON BROWN: Investing with the GNU in mind

Markets went storming higher last Tuesday after the confirmation of a government of national unity (GNU) between the ANC, DA and IFP as the main parties, with Cyril Ramaphosa being sworn in late on the Friday ahead of the long weekend.

This saw local markets up 3.5% and the rand down to about R18/$, with banks and local retailers topping the list of astounding returns. This is one of the biggest days on the JSE since February 15 2018 when Ramaphosa took over from recalled president Jacob Zuma. Things unfortunately did not go as many hoped they would after Ramaphosa’s ascension, with the top 40 up less than 50%, Over six years, that’s about 7.5% a year, hardly beating inflation. And the rand has weakened from under R11.50/$ back then to the current R18/$.

Many are wondering if, this time, things will be different. The short answer is yes — but there are still risks. First, the GNU could collapse, but more importantly, turning a country around is not an easy or quick process.

However, even just a 15% a year return could see our market doubling over the next five years. If load-shedding stays largely away, logistics improve and a strong rand and lower rates on government bonds see debt go lower, that is a quite likely return. Frankly, even higher is possible.

Many investors are asking if they should increase weighting to South Africa Inc, maybe even bring back some dollars from offshore into rand, then send them offshore again if necessary later.

First, no, do not bring back rand. That’s trying to be a forex trader and, as I recently wrote, not only is that a horrible idea, you will probably lose money.

The bigger issue is what to do with local money. Many of us will have locally listed ETFs that actually invest into offshore markets such as the S&P 500. Here I would also be cautious. Yes, some sectors such as local retail and the banks are still cheap, even after the recent run. But be prudent, wait for pullbacks and don’t have fomo.

Similarly, don’t rush all your local money offshore because we have the best exchange rate of the year. Again, there will probably be even better options ahead.

Importantly, also understand that while we live in a global world, most of our assets are local: our jobs, cars, homes and at least 55% of our regulation 28 investments. We’re undoubtedly overexposed to a single small economy.

I have increased my South Africa Inc exposure and I will probably increase it further in the months ahead. But do so cautiously; already our banks are a few percent lower than the highs of just after the GNU announcement.

To end on another word of warning. Politicians the world over seem to love putting their feet in it. Even if the GNU lasts five years, expect periods when somebody says something that spooks markets, sending everything falling. No return ever happens in a straight line higher, and this one will be no different. So expect volatility.