Mizrachi SA Jewish Observer - Pesach 2017 | Page 45

ADVERTORIAL

IZAK ODENDAAL , OLD MUTUAL MULTI-MANAGERS AND MARK SELCRAIG , OLD MUTUAL PRIVATE WEALTH MANAGEMENT

2016 was a terrible year . According to StatsSA , the gross domestic product ( GDP ) – a broad measure of a country ’ s economic activity – declined by 0.3 % in the fourth quarter after inflation . For the year as a whole , GDP growth was barely positive at 0.3 %, the slowest expansion in a calendar year since the 1.5 % decline in 2009 . Chart 1 shows how growth declined every year since 2012 .

GLOBAL FACTORS Global rather than domestic factors are the main drivers of the currency , particularly commodity prices , sentiment towards emerging markets , and the outlook for American interest rates .

Being appropriately diversified is important . At the start of 2016 , investors may have been tempted to be fully invested offshore ( the rand was collapsing and a downgrade seemed imminent ). But South African bonds were the best performing local asset class in 2016 , with the All Bond Index returning 15 %, according to Datastream . Markets are simply unpredictable .

Chart 1 : Global and local economic growth

A sharp 11.5 % decline in the mining sector was largely to blame for SA ’ s fourth quarter contraction . Manufacturing and agriculture were also negative . Agriculture and mining subtracted 0.6 % from GDP growth for 2016 . In the case of agriculture , it was the eighth consecutive negative quarter . However , the outlook is now better , as the drought has come to an end in most parts of the country and crop sizes are expected to rebound .

CYCLES The fourth quarter GDP release contained evidence that the cycle has turned , with a modest improvement in growth ahead . Household consumption spending of 2.2 % was reasonably healthy . Exports increased by 12.5 % and came from mining inventories , which suggest mining production would have to increase in the coming quarters if companies respond to the higher dollar commodity prices .

GDP can also be looked at from the perspective of income . Compensation of employees ( the wage bill ) grew slower at 7 % year on year , largely due to a slowdown in government ’ s wage bill growth . This suggests some progress on the part of government in containing costs . With inflation set to decline , overall wage bill growth of 7 % should translate into real disposable income growth for households . Slower compensation growth also implies that companies are claiming a bigger slice of the GDP pie . Gross operating surplus for the private sector , a rough proxy for profits , grew at a faster annual pace of 6.3 % in the fourth quarter .

SUPPORTIVE GLOBAL ENVIRONMENT Significantly , the global environment is turning more supportive of the domestic economy . The Organisation for Economic Co-operation and Development ( OECD ) expects global growth to increase from 3 % in 2016 to 3.5 % in 2018 . This represents a modest improvement in global growth and indicates that growth forecasts are no longer being revised downwards . At turning points , forecasters are typically too pessimistic , so forecasts may be upgraded . The global growth slide that started in 2011 ( when the global economy grew by 4 %) bottomed out last year . SA , as a small open economy , usually follows the global cycle with a lag . It has materially underperformed over the last few years , but should follow the world economy .

MARK SELCRAIG Old Mutual Private Wealth Management

Source : Datastream

STAY THE COURSE In an investment landscape that constantly delivers new highs and lows as macroeconomic conditions evolve , it is key for investors to ignore excessive noise in the markets and avoid making rash emotional decisions that can turn a minor market hiccup into a real loss .

There is no crystal ball , so appropriate diversification should be the foundation of any successful investment strategy . Investment returns will depend on an investor ’ s capital and ultimate lifestyle objectives , and by setting clear financial goals and constructing a well-diversified portfolio , investors can reach their financial goals , regardless of the volatility in the market .

* Please note the information provided in this article was relevant at the time of writing . For more information contact Mark Selcraig at 011 685 7400 or email mselcraig @ privatewealth . co . za .

IMPORTANT INFORMATION Old Mutual Wealth ( OMW ) is an elite service offering brought to you by several licensed financial services providers in the Old Mutual Group . This article is for information purposes only and does not constitute financial advice in any way or form . It is important to consult a financial planner to receive financial advice before acting on any information contained herein . OMW , the Old Mutual Group and its directors , officers and employees shall not be responsible , and disclaim all liability for any loss , damage ( whether direct , indirect , special or consequential ) and / or expense of any nature whatsoever , which may be suffered as a result of , or which may be attributable , directly or indirectly , to the use of , or reliance on any information contained in this article .