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March 2020 – Investment Update

Coronavirus and the impact on the market

The world economy is seeing the biggest crisis since the financial shock of 2008 as the risks of Coronavirus (COVID 19) intensify across Europe and within our own country, South Africa. This is unprecedented in history and no one knows how this is all going to end up! Shares throughout the world have sold off sharply in the face of the growing impact of the Coronavirus. This was compounded by the sharp drop in the oil price.

Declining markets are obviously of great concern to investors. We at Kevin Mills Financial Services are very cognisant of the anxieties and real lived experiences of our clients. Investment losses are always concerning! 

We have put together a spreadsheet that shows the percentage decline in value of some funds that one might typically expect to find within an investment portfolio. This spreadsheet shows the decline in value from the 2nd January 2020 to the 16th March 2020.

“Income funds” are constructed to provide clients with a regular, reliable and secure monthly income which is +/- 8% per annum.  Income funds are doing exactly this! Since most income funds are not invested in shares (or only a have a very small percentage allocated to shares) the income funds have only seen a fractional decline in value.

Low-risk stable funds have declined by +/- 8%

Balanced Funds have declined by 10-20%

The Johannesburg Stock Exchange All-Share index has declined by 29%

We have been in contact with many of the fund managers over the last two week. Our interactions within these fund managers produced some consensus opinions:

  • Declining markets present attractive and exciting investment opportunities.
  • Although the markets may decline further there are investment opportunities and a number of the fund managers have begun buying shares at the lower prices albeit slowly and with caution.
  • Fund managers generally are doing their best to protect investor’s capital in the face of the worst crisis in decades. 
  • Investments should be made on a long term basis and not on short term market movements.
  • Most of the fund managers are rational and optimistic and are finding good value in shares at the current prices.


So what should investors do?

  • Don’t Panic! Stick to your investment plan.
  • Don’t buy high and sell low. This is irrational and guarantees losses! It is the worst thing that you could do!
  • Ignore all the “hype” and commentaries by people who really do not understand the stock markets.
  • You have probably invested with fund managers that are rational, competent, experienced and who have spent an enormous amount of time studying the markets. Trust them!

Coronavirus – Co-Vid19

Coronavirus and the implications for investors

Could anyone imagine at the start of the year that Italy would quarantine their entire country, that most schools, colleges and universities in Europe would be shut down or that America would cancel all travel between Europe and itself? The Coronavirus certainly has created a mass panic around the spread of the virus with the World Health Organisation yesterday labelling the virus a global pandemic.

All of this uncertainty around the spread of the virus has led to a large sell-off of global and local markets over the past week. In the attached document, Investec’s Jeremy Gardiner provides us with his view on the virus, the market and why investors should not make any irrational spur of the moment decisions.

Andrew Lapping, Chief Investment Officer of Allan Gray also provides commentary on how they perceive the current market conditions and the effect that the Coronavirus is having on their investment portfolios. Making sense of current market decisions

Since the start of this week, markets have declined very significantly. This is not unusual for markets.

Markets cannot go up forever!

However, as pointed out by both Jeremy and Andrew in their respective articles it is at times like these that opportunities present themselves for investors to purchase shares at attractive levels and reap the rewards when normality returns to the market.

Kevin has previously written about his concerns regarding the price of the stock market and as such he has been moving client funds into income-generating investments with very little to no exposure to the stock market. Investors in these income portfolios can rest assured that their income and investments have not been affected by the recent sell-off in local shares.

For investors invested in balanced funds the opportunity to acquire meaningful stakes in businesses at a 20, 30 or 40% discount offers the potential for long-term capital appreciation and wealth creation! Whilst markets corrections are never an easy investment period for investors to sit through, the recovery of the markets very often leads to significant outperformance for those investors who remained focused and committed to their investment strategies.

“A smooth sea never made a skilled sailor” Franklin Roosevelt

February 2020 – The Budget

No Increase in personal taxes…

As South Africans, we have become accustomed to uncertainty and unpredictability! Barely two months into the new decade and we’ve already had the JSE All Share Index surge to new highs then quickly retreat on the back of fears of the Coronavirus outbreak. Electricity has been switched on, switched off, switched on, switched off, switched on or off, off or on, I forget!

Yesterday the Minister of Finance, Mr Tito Mboweni, shocked most South African taxpayers with his slightly more positive Budget update that signalled no personal tax increases for the already weary taxpayer and proposals to try to limit public sector wage increases.

What were the key changes in the Budget?

  • Above-inflation increases in the personal income tax brackets
  • Annual tax-free savings contributions increased from R33, 000 – R36, 000 per tax year
  • No transfer duty payable on the purchase of a property up to R1, 000, 000

Click here to listen to STANLIB’s Chief Economist, Kevin Lings as he unpacks the economic analysis of the Budget 2020.

Coronavirus

The beginning of this week saw global stock markets decline on fears of the spreading of the Coronavirus and the impact that this may have on global economies. South Africa is not immune to this sell-off and the past few days has seen the market decrease in-line with global markets around the world.

Many South African companies listed on the JSE All Share Index are now at the cheapest levels they have been in many a recent year. Fund Managers are now optimistic about the potential for growth from these current levels. There remain very well run companies in South Africa who will be able to adapt to the changing environment and continue to grow their earnings and reward investors with capital appreciation in the long term.

With so much noise being made by politicians and volatility in the markets here to stay it is important for investors to remain calm and focus on allowing their capital the time it requires to grow. It’s not timing the market but time in the market that rewards investors! We continue to ensure that investors capital is protected in these turbulent times but are happy to address any worries that clients may have.

Please contact the office to schedule an appointment if you would like to discuss anything over a cup of coffee.


For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” Winston Churchill