South Africa has just celebrated its 30 years of true democracy. Even with all its troubles, our country has proven to be resilient and appears to enjoy more than its fair share of good luck!
Despite media noise, South Africa will not succumb to political madness. We are confident that, regardless of all the ifs and buts, South Africa will enjoy a largely free and fair election. It may not be perfect, but it will pass muster as free and credible. The positive result of this election should see an improved government, whether that is ANC with a very marginal majority or a coalition with a small but credible party alongside the ANC.
In a recent article featured in Business Day, written by my old professor, Brian Kantor, he talks about how the ‘wealth effect’ may matter more than income. The ‘wealth effect’ is sensitive to the economic environment. In good environments, this can encourage personal spending, and in negative ones, suppress it. In the US, personal wealth is about 7 times income. In South Africa, it is a credible 4.5 times. This wealth has the propensity to increase spending and, in economic terms, set up the multiplier effect, which in turn increases wealth.
In the past and at present, the economic environment has been very depressing. Load shedding by Eskom, poor governance, and corruption have suppressed the ‘wealth effect’ and negatively affected investment and spending.
At present, the JSE is rock bottom, with many of its listed companies having exceptionally low Price-to-Earnings ratios of 4 and 5. In contrast, their American counterparts, such as the S&P 500, are averaging P.E. ratios of 25, while the NASDAQ exhibits even higher ratios.
If the elections are credible and there is a positive ‘wealth effect’, and if the interest rates around the world remain high, there is a very good chance that South African shares will rerate, leading to a good capital gain. Property may also appreciate considerably.
Bitcoin has undergone a halving event recently, mandated by a higher authority. As a result, Bitcoin miners can now expect to receive only half the value of an old Bitcoin for every new one they create or mine. This should, according to some sources, limit the supply of Bitcoin by half or more and, in theory, make the present Bitcoins more valuable.
We still do not favour Bitcoin as an investment, as it relies solely on human emotions for its value. It has no intrinsic value, and if the blockchain program were corrupted or affected by world events—e.g., computer hacking, satellite failures on a military level—the confidence, the human emotion behind Bitcoin, could vanish, rendering it worthless overnight.
Gold has done well, doing the job it does best—keeping true value over time! Although Gold, like Bitcoin, is also driven by human emotion, it has intrinsic value and is consumed in electronics and jewellery. Gold has been a lot less erratic and, in our eyes, a much more credible investment for the longer term.
Enjoy Election Day!
Nick Russell
and all at Pinto Russell
Certified Financial Planner CFP®
Please note: This article does not constitute advice