Interesting Articles

The IMF made a fifth cut to its 2019 global growth forecast, reducing the forecast to 3% for 2019; this is its weakest level since 2009, caused by trade war tensions that are undermining investment and growth. The World Trade Organisation cut its forecasts for global trade growth for 2019 to 1.2%, also the lowest level in a decade. Central banks continue to do their best to support growth, with the US Federal Reserve Bank cutting interest rates for the third time and restarting quantitative easing, while the Reserve Bank of Australia cut rates to a record low of 0.75%. India also cut rates, and Russia’s central bank cut their key interest rate from 7.0% to 6.5%. Enhanced liquidity from central banks, combined with a partial US-China trade deal, resulted in emerging markets reaching their strongest levels in three months. At quarter end, October flash PMIs also suggested a potential upturn in global manufacturing, which should see the market strength continue into year end. Despite renewed demand, however, oil remains sluggish at $56 a barrel, after Russia said it is still too early to talk about deeper output cuts. Read more

The tax benefits of investing in a retirement annuity fund (RA) have meant that to date they have been a popular choice for retirement savers. Many RAs offered the additional benefit of investment flexibility, allowing individual investors to be fully invested in equities by applying investment limits only at the fund level. Some clients have expressed concern that the revised retirement fund investment regulations put them at a disadvantage as they cannot invest fully in equities (see the text box below). These investors could forego the tax benefits of RAs and avoid their restrictions by rather investing directly into unit trusts, also known as ‘discretionary’ investments, to try to maximise their long-term returns. This raises an important question: do the benefits of an RA outweigh the potential for higher returns from full exposure to equities? The answer to this question depends on your circumstances, most significantly your investment period and your marginal tax rate, as well as the long-term outlook for equities. Read more

Professor  Hausmann  was  in  South  Africa  in  February/March  2017  at  the  invitation  of  the  Centre  for  Development  and  Enterprise,  giving  a  series  of  lectures  to  various  audiences  both  in  government  and  out.  This  report  distils  some  of  the  key  insights  offered in those lectures. The first few entries set out how Professor Hausmann thinks development happens; the last set out his concerns about the deep, historical mistakes South Africa could be making. Read more

The value proposition for advisors has always been easier to describe than to define. In a sense, that is how it should be, as value is a subjective assessment and necessarily varies from individual to individual. However, some aspects of investment advice lend themselves to an objective quantification of their potential added value, albeit with a meaningful degree of conditionality. At best, we can only estimate the “value-add” of each tool, because each is affected by the unique client and market environments to which it is applied. Read more

In the world of finance there are a few themes that are repeated to the point where you really have to be quite creative to add more flavour to the topic. The wonder of compound interest, starting to save early, the impact of inflation and of course “if an investment sounds too good to be true, it probably is” come to mind.  A financial principle that rarely gets discussed though, at least in any meaningful manner, is frugality. Read more

Most of us underestimate the time it will take to complete a future task. This planning fallacy is at work when that little weekend kitchen repair job turns into a month-long saga and it gets worse with more complex tasks. In terms of your financial life few tasks are as complex, or challenging, as saving for retirement. Many of us will set aside our 40s and 50s as time enough to save for retirement, while living the good life in our 20s and 30s, when the sober truth is that there is no time to waste. We convince ourselves that we will save more of our income later in life to catch up on the years of not saving, but that invites a similar cognitive trap: excessive optimism about the future. It also fails to take into account that time allows our money to grow exponentially thanks to the power of compounding. A practical thought experiment to illustrate just how little time we have to save is to think about the long term as a very short period of time. Read more

Many investors lack the time, knowledge and experience to invest successfully, often encountering diffculties that could have been avoided had they taken advice from an independent financial adviser (IFA) at the outset and continued to listen to their counsel over time. Jeanette Marais of Allan Gray discusses some of the merits of getting financial advice and offers a few practical points to consider when choosing an IFA.  Jeanette recently overheard a !nancial adviser tell a client: ‘I am not here to make you a lot of money. If you want someone to do that, and trade shares back and forth, then I’m not the person; but if you’re looking for someone who makes investments consistent with your risk tolerance and goals, then I can help you.’  This got her thinking about how many people have misconceptions about the role IFAs play.   Read more

The upside of living at the bottom tip of Africa is that we have been relatively sheltered from what has been going on in the global financial crisis. The downside is that we don’t get to meet people who live in Athens, Madrid, Istanbul, Paris, Cairo etc. so we often assume that everything there is perfect and that we alone have problems. This is by no means the case. It’s tough out there; the world has just emerged from the biggest economic crisis since 1929. I had a youngster complaining to me recently that he was struggling to find a job in South Africa. ‘Don’t give up,’ I replied. ‘It’ll get easier as the economy grows,’ which is all you can say, but that is the sad reality of the economic times we live in. There is an entire generation in Europe that is unemployed! There are encouraging signs that the world is healing and that economies have bottomed. Compared to 18 months ago, the economic numbers – and hence the newspaper headlines – are ll improving. Interestingly, this is more the case in the developed world. The emerging world is still suffering the economic aftershocks of the recent withdrawal of investor flows, as well as the emotional trauma that comes with that.  But then, it is simply our turn. For the first two or three years of the financial crisis, emerging markets were shielded, as Dr Ben Bernanke, Fed Chairman, kept them buoyant while the developed world struggled. Now the developed world is improving and this will ultimately drag the emerging world out of its misery. Read more

Gene’s first really famous contributions came in the late 1960s and early 1970s under the general theme of “efficient markets.” “Efficient Capital Markets: a Review of Theory and Empirical Work ’’[15] is often cited as the central paper. (Numbers refer to Gene’s CV.) “Efficiency” is not a pleasant adjective or a buzzword. Gene gave it a precise, testable meaning. Gene realized that financial markets are, at heart, markets for information. Markets are “informationally efficient” if market prices today summarize all available information about future values.  Informational efficiency is a natural consequence of competition, relatively free entry, and low costs of information in financial markets. If there is a signal, not now incorporated in market prices, that future values will be high, competitive traders will buy on that signal. In doing so, they bid the price up, until the price fully reflects the available information.  Like all good theories, this idea sounds simple in such an overly simplified form. The greatness of Fama’s contribution does not lie in a complex “theory” (though the theory is, in fact, quite subtle and in itself a remarkable achievement).  Rather “efficient markets” became the organizing principle for 30 years of empirical work in financial economics.  That empirical work taught us much about the world, and in turn affected the world deeply. Read more

Our entire finance-based monetary system – led by banks but typified by insurance companies, investment management firms and hedge funds as well – is based on an acceptable level of carry and the expectation of earning it.  In a New Normal economy where lenders dance to the Blue Danube instead of the Lindy, how should we move our own feet?  Carefully, I suppose, and with recognition that historic returns are just that – historic.​  William H. Gross Read more