Hello Everyone
How are you all managing during this lockdown period?
It’s not even a week since my first update of the year & there is already a lot to discuss.
COVID 19
I mentioned the role that social media plays in terms of affecting sentiment in my update on Tuesday & wow, have people been busy on their smartphones this past week!
The misinformation, not all fake news, but difficult to verify, that has been coming through to us all, serves to confuse the discerning recipient while others may be convinced
of its integrity & then decide to forward it on to their contacts.
This causes more confusion and when one isn’t able to decide what is true and what isn’t, it often results in one being cautious & opting to be safe than sorry. In the case of
this COVID 19 pandemic, that could lead to stockpiling of food which is exactly what the authorities do not want, because the poor & those who live far from stores, are at risk
of going without.
The question which is probably foremost of our thoughts at the moment is: Is this pandemic going to lead to millions of deaths, as one, now discredited, surgeon working at
Groote Schuur hospital suggested was likely to happen last week, or will the numbers be more in the region of a few thousand? The difference between a pandemic of the
proportions of the 1918 flu pandemic, during which half of the world’s population were infected and 50 million people lost their lives & the 2003 SARS pandemic, during which
just under 800 people lost their lives, is vast & we are desperate to know which this COVID 19 pandemic will be.
As virology researchers are frantically busy trying to develop a vaccine, something which may takes several months to achieve, it is evident that as with all virus pandemics,
there will be a lifespan which is followed, the duration of which we do not know because preventative measures such as lockdowns to enforce social distancing are not being
obeyed in every town, city or country. This lifespan may run its course & reach a natural end before a vaccine can be developed.
While nature takes its course & global investment sentiment reflects these worrying circumstances, investors tend to vacillate between fear (most of us at the moment) &
greed (only a few of us right now). Equity markets typically have been known to discount the future about 18 months in advance, so one does not wish to miss out on a rally,
when it commences. That said, when dealing with other people’s money, an advisor errs on the conservative side & rather waits a little longer before advising an investor to
enter the market than an aggressive trader would with his/her own money. I am watching things closely in this respect.
For a regularly updated global map of the pandemic, click on this link www.covidvisualizer.com
Downgrade confirmed by Moody’s
At least the uncertainty surrounding the downgrade decision is now over…that gives some stability going forward, but for now our government bonds will be sold by Emerging
Market bond funds within the next 30 days. On the positive side, though, when a bond is sold, it means that there is also a buyer, someone who wishes to hold that bond at its
Current price because he/she thinks that there is a likelihood of the price increasing over time. In addition, with the current global bond environment being devoid of many attractive
yielding offerings, I feel that the timing of this downgrade will prove to be very opportune for South Africa.
The profile of the foreign investor who is likely to buy our government bonds going forward (from tomorrow) is likely to be at the higher end of the risk appetite spectrum than before.
Apart from those buyers there are our own banks & investment institutions who will be buying our bonds at basement prices. So, what does that make our asset managers & banks,
are they now becoming high risk players? (using your money to buy those bonds). Probably not. Our government has not before defaulted on its debt repayments, so the sentiment
amongst local managers seems to be that, although our bonds have been trading at prices lower even than Brazilian & Venezuelan government bonds, the fears as expressed by the
price are unfounded.
Could this downgrade decision then help our treasury & our cabinet & our public sector as a whole to knuckle down now & to begin the rebuilding process from the bottom up? I think it does.
The Rand is already weak, so will probably hold its own better now (while offering very attractive prices for foreigners buying or exports) & this will hopefully add the incentive to local
manufacturers & service providers to consider getting back into the arena of borrowing in order to be able to expand their inventories with the view to increasing their sales again.
Let’s see what South Africa can do now. We’ve been considered as down & out before & we came up trumps – look at what the Springboks did just six months ago at the world cup against a
seemingly invincible & much better paid English team.
All the best for the rest of week 1 in lockdown.
