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Some bright spots in a tough economic environment

The rand shed 19% against the dollar in the first half of the year, which is bad news for things like the price of imports and overseas travel, but it does make South Africa more competitive globally, supporting local exporters.

Pointing also to the massive global stimulus, 10X Investments CEO Steven Nathan said: “It is important to see that, even in this tough economic environment, it is not all bad news.”

“Governments around the world are pouring a lot of money into their economies to stimulate growth, which could be positive for commodity and resource prices, where South Africa would be a beneficiary.”

Noting that the rand had sold off significantly over the last 6 months reflecting a bleak macro-economic outlook, Nathan said the currency’s poor performance was in line with other Emerging Markets. Brazil was down 26%, Mexico down 18%, Argentina down 15%, and Turkey and Russia down 13% in the year to June 30.

“This is not exclusively a South African story,” he said. “Despite all the challenges in South Africa, a lot of what happens in South African financial markets is determined by the global sentiment towards Emerging Markets. At times of crisis, uncertainty and poor economic growth, investors tend to flee Emerging Markets.”

Nathan said that despite the rand selling off significantly the rand price of oil had fallen through April and May, putting downward pressure on the petrol price, thereby providing some relief.

He also pointed to the soft inflationary environment, with May CPI coming in at 2.1%. “This has provided scope for the South African Reserve Bank to aggressively cut the Repo Rate by a cumulative 3% to 3.5%, its lowest level in almost 50 years,” he said.

He said the lower interest rate, coupled with lower inflation, softens the economic blows of the lockdown, and is a windfall for those who have not been impacted.

Nathan, who is also the founder of the disruptive asset manager, was updating clients on the 10X portfolios performance for the year to June 30.

Watch the highlights of the mid-year review: https://10xinvestments.wistia.com/medias/b3c1tiidqi

“In March, markets around the world fell by 30%. It didn’t matter whether you were in the US market or in South Africa, markets fell by about 30%, sometimes a little bit more,” he said, adding that most of those markets had recovered by the end of June: “The JSE is down about 3%. In dollar terms, the US is down 2%, Developed Markets overall are down about 5% and Emerging Markets are down about 10%.”

Nathan – who in South Africa is at the vanguard of asset managers who eschew stock-picking in favour of tracking an index – added that portfolio performance in the first half of 2020 had laid bare active fund managers’ claims that they would be able to protect investors in times of market volatility.

“When the markets fell substantially in March, active fund managers had the opportunity to live up their promise of being able to see when markets were crashing and protect their clients,” he said. “But that didn’t happen.”

The average High Equity portfolio of large active managers* fell by 11.5% in March; 10X High Equity fell by 9.7%. And then, in April when the markets rebounded sharply, the average large manager’s portfolio rose by 9.9%, and the 10X High Equity portfolio rose by 11%.

“We did relatively better on the way down and on the way up, even before taking into account our lower fees,” said Nathan.

*According to the Alexander Forbes Global Manager Watch Survey, Best Investment View Category

Watch the full video presentation of the mid-year review:

This article was first published by Cover Magazine in the September 2020 edition. 

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