What is next…?

2020 has started with a BANG, the market is nervous, investors are nervous but strangely, there are a few less people wanting to invest everything in cash. All of this nervous tension is not new, I want you to think back to January 2019. In January 2019 we had just gone through the worst quarter since the global crash, the S&P, MSCI, JSE and both the average high equity and low equity unit trusts were all down for the quarter ending 31/12/2018. The table below reflects all of these losses.

If I had told you on the 1st of January 2019 that during 2019 we were going to see proceedings to impeach President Trump, a hard Brexit becoming a reality, the escalation of trade wars between the USA and China, rolling labour unrest in France and given the dismal returns over the last quarter of 2018, would you have moved everything into cash or would you have stayed in the market? The answer unfortunately is that even without prior knowledge of the aforementioned “calamities”, cash/ income funds showed by far the highest net inflows in 2019. In the second column of the table below you will see what the returns for the various different investment options were for 2019. I have taken the liberty of assuming 30% tax on Money Market Funds (not everyone has a 45% marginal rate)

As South Africans, one of our favourite topics of conversation is how much the Rand is going to depreciate in the next year. On 1 January 2019 the Rand was 14.38 to the US Dollar. If I had have told you that during 2019, load shedding was going to increase, no corrupt politicians were going to be sent to jail, unemployment was going to rise and the parastatals would continue floundering, what would you expect the rand to be on the 1st of January 2020? I would not have had many takers estimating a Rand Dollar exchange rate of 14.01 on 1 January 2020.

Looking forward to 2020, almost 800 highly paid and esteemed economists/business leaders were asked to “guess”/predict the greatest risks to our economy over the short and long term before the Davos summit in January. Guess what? The short-term risk of infectious diseases affecting the world economy was not even in the top 20 most probable risks. It took the Corona Virus a week to prove that forecasting anything is nigh on impossible (this gem was pointed out on Twitter by Deon Gouws from Credo).

Kind regards,

BARRY HUGO
CFP® CA (SA)

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