Some of the greatest success stories all have one thing in common, and that is that hardship isn’t used as an excuse, but as motivation – the motivation not to focus so much on current circumstances, but rather on the opportunities that tomorrow may bring. Famous sports stars like Mohammed Ali (boxing), Nikki Lauda (Formula 1) and Tiger Woods (golf), would not be as famous as they are if they didn’t rather focus on a brand-new day during times of hardship. Tiger Woods is a shining example. Since winning the US Open in 2008, he was a regular feature in news stories, and not for any good reasons. By 2014, his back was so badly injured that his chances of playing golf again became smaller by the day. But Woods said, “The greatest thing about tomorrow is, I will be better than I am today.” And boy, was this true. Eleven years after winning the US Open, Woods made one of the best comebacks in sporting history by winning the US Open again in 2019.
This somewhat longer introduction fits in quite well with our current state of misfortune. To say that COVID-19 (aka the coronavirus) has plunged the human race into a state of fear is a complete understatement. And I’m not going to downplay this virus, because I have no doubt that the impact it will have on the human race will be greater than initially anticipated, not necessarily in terms of deaths, but in terms of its disruptiveness, especially to the global economy.
After South Africa, and more specifically our stock exchange, experienced a very rough 5-year period between 2014 and 2019, we have now seen the JSE, along with the rest of world markets, declining even further. This is actually also an understatement, because up to and including 13 March 2020, the FTSE/JSE All Share Index was trading 23.5% lower than the last trading day of 2019. About two weeks ago I referred to high market volatility. Since then, we have seen the VIX exceed levels last seen in 2008 and reach some of the highest levels since its inception in 1990. The current level of fear has to be the worst our global economy has seen to date.
As things stand at this point, we now find ourselves IN this situation, and just like any hardship we have endured in the past, we will get through this as well. Without a doubt. Using Tiger Woods’s saying as inspiration, I don’t just believe that we will get through this, I believe that we will emerge from this stronger as a nation. With that in mind, why then aren’t more investors greedy to invest like Warren Buffett right now, while the rest of humanity are living in fear?
Let’s have a look at our local market and the facts at hand. During the last three weeks, aside from COVID-19, three other noteworthy events took place:
- At the end of February, Minister Tito Mboweni announced a corporate and personal tax saving for the 2020/2021 financial year. According to National Treasury, personal tax savings should put around R2 billion back into the pockets of the general SA population.
- Since the beginning of this year, the oil (Brent Crude) price has dropped by 41% in rand terms. Since the end of February alone, the oil price has declined by 30% in rand terms, which means that the price of petrol is most likely to see one of its biggest drops ever. As transport makes out roughly 15% of the SA inflation basket, it doesn’t take a rocket scientist to figure out that there will savings in that department as well. But petrol won’t be the only product to benefit from a lower oil price. Food prices should also come down as transport costs become cheaper. Even paraffin should become cheaper. According to Statistics South Africa’s (Stats SA) General Household Survey in 2016, most South Africans use electricity for cooking and heating, but there is still a large number of people who rely on paraffin as a power source. All of those people should also benefit from a drop in the oil price.
- The SARB, in line with the global trend, announced an interest rate cut of 1%. It doesn’t matter what your opinion of the South African economy is, if you think that this won’t have a positive effect on the economy, you’re missing the plot. As with the two abovementioned points, this is money being put back into our crippled economy and it can potentially have a significant effect locally.
Many of you may wonder where I see all this money flowing to, and my answer will be subjective. When I look at Stats SA’s most recent figures on Personal Savings as a percentage of Personal Income, I can definitely tell you where it won’t be flowing into, and that is savings. Only 0.66% of all personal incomes are saved currently. So where will it go then? I reckon it will most likely flow into the retail, healthcare and mobile services (data and talk time) sectors. These are all sectors that have taken quite a knock over the past few years.
To conclude, I would like to wish all of you the best of health and tranquillity during these very difficult times. I do believe, however, that we will be stronger tomorrow than we all are today.
The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice. This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for actions taken based on the information contained in this blog. Since individual needs and risk profiles differ, it is always advisable to consult a qualified financial adviser before taking action.