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Global and local tides of economic change

How to navigate uncertainty with strategic insight

Dr. Francois Stofberg: Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients.

In the ever-evolving landscape of global economics, recent political and financial developments offer valuable insights into market dynamics and investment principles. In this economic commentary, we explore how leadership, market sentiment, and strategic decision-making shape economic outcomes.

Leadership and market confidence
Joe Biden’s attempts to reassure Democratic donors after a challenging debate performance illustrate the importance of leadership in maintaining market confidence. Like companies must manage investor relations following quarterly earnings reports, political leaders must address concerns and stabilise sentiment to ensure ongoing support.

Cross-strait economic integration and investment challenges
In China, efforts to attract Taiwanese investment to the Fujian province have faced significant challenges. Taiwanese investment in Fujian decreased by 80% in 2023, reflecting broader economic and political tensions. Despite incentives such as tax breaks and subsidies, many Taiwanese businesses remain sceptical, owing to rising production costs, geopolitical risks, and a shift towards alternative investment destinations. This scenario underscores the complexities of cross-border investments and the need for robust risk assessment. Investors must consider geopolitical stability, local market conditions, and long-term viability when making international investments. China’s experience highlights the delicate balance required to foster economic integration amid political uncertainties.

European Central Bank (ECB) and market intervention
If the French elections lead to market panic, the ECB faces speculation about potential intervention. Concerns about a left-wing or far-right parliamentary majority have led to a sell-off in French bonds, reminiscent of the Eurozone debt crisis. The ECB’s “transmission protection instrument”, designed to counter unwarranted market dynamics, may be tested for the first time. This situation illustrates the critical role of central banks in stabilising financial markets. Investors closely monitor central bank policies and their responses to political developments. Effective intervention can prevent contagion and maintain market integrity, highlighting the importance of proactive and well-communicated monetary policies.

The global influence of artificial intelligence (AI) investments
Despite recent market corrections in tech stocks, AI continues to attract significant attention and investment. Prominent investors remain bullish on AI’s long-term potential. The focus on AI infrastructure and its applications when it comes to enhancing productivity underscores a broader trend towards technology-driven growth. This trend emphasises the need for strategic foresight in investment decisions. AI’s potential to revolutionise industries requires investors to remain informed about technological advancements and market trends. Balancing hype with realistic expectations is crucial for long-term success in the tech sector.

Nomura’s strategic shift towards wealth management
Nomura, Japan’s largest brokerage and investment bank, is shifting its focus towards wealth management and alternative assets. This strategy aims to capitalise on a generational shift in Japanese investment habits, with a growing emphasis on private equity and private credit markets (this is not much different from what we are currently seeing in South Africa). Nomura’s alliances with regional banks and expansion into global asset management reflect a broader industry trend towards diversification and long-term growth. This strategic shift highlights the importance of adapting to changing market conditions and investor preferences. Financial institutions must innovate and diversify their offerings to remain competitive and meet the evolving needs of their clients. Nomura’s approach serves as a model for navigating industry transformations and capturing new growth opportunities.

Navigating uncertainty with strategic insight
The highlighted stories and developments offer valuable lessons for investors and policymakers alike. Whether dealing with political uncertainties, cross-border investments, central bank interventions, or technological advancements, the key to success lies in resilience, strategic communication, and informed decision-making. By understanding and applying these principles, stakeholders can better navigate the complexities of the global economic landscape to achieve sustainable growth.

Africa’s wealth landscape

An overview of wealth and investment in Africa

Dr. Francois Stofberg: Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients.

In this economic commentary, we delve into some of the significant economic stories that are shaping our nation and the African continent.

Africa’s wealth landscape
Africa is home to a dynamic and growing wealth segment. According to the latest Henley & Partners’ Africa Wealth Report, the continent boasts 135 200 millionaires, 342 centi-millionaires, and 21 billionaires, collectively holding an impressive $2.5 trillion in investable wealth. South Africa (SA) stands out as a leader, with nearly 40 000 dollar millionaires. Johannesburg and Cape Town are recognised as major wealth hubs, driving significant economic activities.

The report projects a 65% surge in Africa’s millionaire population over the next decade, fuelled by growing sectors such as fintech, ecotourism, and green technology. However, wealth accumulation is not without its hurdles. Currency depreciation and underperforming stock markets pose challenges. For instance, the rand has depreciated by 43% against the dollar from 2013 to 2023.

Investment migration: A growing trend
Investment migration is becoming increasingly popular among high-net-worth individuals (HNWIs) in Africa, particularly in SA and Nigeria. These individuals seek stronger passports through investment migration programmes, such as those offered by Portugal and Spain, which provide access to more than 190 visa-free destinations. This trend highlights the desire for global mobility and better business, education, and healthcare opportunities.

SA’s automotive market
Consumers continue to gravitate towards more affordable cars in response to economic pressures. The influx of Chinese and Indian car brands has provided more options for budget-conscious buyers. The local consumer market is fragile but there are positive signs for the future. The anticipated lower interest rates and a potential government of national unity could stabilise the currency and boost economic confidence, encouraging investment and job creation.

Luxury real estate and wealth migration
The allure of Africa’s wealth can also be seen in its luxury real estate markets. Cities like Cape Town and villages like Grand Baie in Mauritius are becoming hotspots for luxury and investment. Investment migration is emerging as a significant catalyst for growth, attracting foreign capital and enhancing global mobility for African HNWIs through residence and citizenship-by-investment opportunities. However, the report also notes that countries like SA and Egypt have seen declines in their millionaire populations by 20% and 22% respectively over the past decade.

Challenges and opportunities in Africa’s wealth markets
Despite the challenges, Africa’s potential for wealth creation remains vast. With a youthful population, abundant natural resources, and increasing consumer spending power, the continent is ripe for strategic investments in education, infrastructure, and technology. These investments are crucial to unlocking Africa’s potential and ensuring sustainable growth.

The impact of currency depreciation
Currency depreciation remains a significant challenge for wealth retention in Africa. The report highlights that the rand has depreciated significantly against the dollar, mirroring trends in other African nations such as Nigeria, Egypt, Angola, and Zambia. This depreciation impacts the attractiveness of local investments and poses risks to wealth accumulation.

The rise of private equity
Private equity is playing an increasingly prominent role in Africa’s wealth landscape. Many private equity firms are targeting publicly listed companies to take them private, providing greater control over company operations and ensuring a larger share of returns. This trend is expected to continue as certain sectors mature, presenting opportunities for consolidation and growth.

In conclusion, Africa’s wealth story is one of resilience and opportunity, especially in SA, which continues to play a crucial role in the continent’s economic narrative. The path ahead is fraught with challenges but, with strategic navigation and investment, it holds the promise of a prosperous future.

Navigating the inflation landscape

Dr. Francois Stofberg: Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients.

The latest United States (US) Consumer Price Index (CPI) report, released in May, provides valuable insights into the current economic landscape and its implications for investors and financial advisors in South Africa (SA). Understanding these dynamics is crucial to making informed investment decisions in today’s global market.

A pause in price increases

For the first time in nearly two years, the overall CPI remained flat in May compared with April, primarily owing to a significant drop in gasoline prices. The core CPI, which excludes volatile food and energy prices, rose by only 0.2%, the smallest increase since October. This undershot the forecasts of most economists, suggesting a potential easing of inflationary pressures. The decline in services inflation, particularly car insurance and airline fares, played a pivotal role in this moderation. This development is critical as it signals a possible stabilisation in core inflation, which could influence the Federal Reserve’s (Fed’s) future monetary policy decisions.

 

Core inflation trends

The annual rate of core inflation decreased to 3.4%, the lowest since April 2021, supported by the smallest rise in housing costs in more than two years. The headline CPI also came in at 3.3%. This decline in core inflation is a positive sign, indicating that broader inflationary pressures are beginning to ease. As housing costs are a significant component of core inflation, their deceleration is particularly noteworthy and could have long-term implications for the overall inflation trajectory.

A steadfast stance during turbulent times

In response to these inflationary pressures and the overarching economic uncertainties, the South African Reserve Bank (SARB) has adopted a posture of caution, maintaining its benchmark interest rate at a formidable 15-year high of 8.25%. This decision, reached with a unified voice within the Monetary Policy Committee, reflects a commitment to anchoring inflation expectations firmly within the bank’s target range, even as the economic narrative continues to evolve in unpredictable ways.

The Fed’s response

The CPI report has increased the likelihood that the Fed will project two rate cuts for 2024 in their updated forecasts, even though Fed Chair, Jerome Powell, only hinted towards one increase during their latest meeting. Interest rate futures markets have shown increased bets on the Fed initiating rate cuts as early as September. The anticipation of these cuts has already impacted the markets, with Treasury yields falling and stock indices rising. The two-year Treasury yield dropped to 4.68%, while the S&P 500 opened with a 0.8% gain. Meanwhile, the Bloomberg Dollar Spot Index experienced its most significant drop since mid-May. These movements indicate market optimism about potential monetary easing, and its positive impact on economic growth and asset prices.

Impact on financial markets

The May CPI report has provided a boost to both the stock and bond markets. The report’s softer inflation figures have fuelled a rally in Treasuries, reducing yields across the curve. Stocks have also benefitted, with the S&P 500 showing gains. The dollar, conversely, has weakened, reflecting decreased expectations for further rate hikes. This environment presents opportunities for investors to capitalise on favourable market conditions. For high-net-worth individuals, this could mean adjusting their portfolios to take advantage of lower interest rates and potential equity market gains.

Implications for South African investors

The US CPI report holds several implications for South African investors. The potential for US rate cuts could lead to a stronger rand, as seen with its recent gains following the cooler US inflation data. A stronger rand could positively impact inflation in SA, potentially leading to lower interest rates domestically. This environment may present opportunities for South African investors to seek higher returns in both local and international markets. Also, the anticipated stabilisation of global inflationary pressures may lead to improved economic conditions and investment opportunities worldwide.

Conclusion

The May US CPI report provides a glimmer of hope for a moderation in inflation and potential rate cuts by the Fed. These developments have significant implications for global markets and investors, including those in SA. By staying informed and strategically adjusting portfolios, investors and financial advisors can navigate these changing economic dynamics effectively. As always, our commitment is to provide you with timely and relevant insights to guide your financial strategies. We encourage you to stay engaged and informed as we navigate these evolving economic times together.

Optimising Wealth: The Art and Science of Investment Management

Investment management is the foundation of building and preserving long-term wealth. It is a blend of art and science, requiring a deep understanding of financial markets, meticulous planning, and a keen eye for opportunity, all while keeping a client’s unique needs at the forefront.

In this article, the investment professionals at Efficient Wealth will explore investment management and investigate the core principles and practices that ensure your hard-earned money works as hard as you do.

 

4 Core Principles of Investment Management

Here are four core principles of investment management:

  1. Portfolio Construction and Management: The heart of investment management lies in building a personalised portfolio, a collection of investments tailored to your specific goals and risk profile.
    This involves a thorough analysis of your risk tolerance, investment objectives like retirement and passive income generation, and your specific time horizon, including short-term savings versus long-term goals. The portfolio is then constructed with a strategic asset allocation, determining the weight given to different asset classes like stocks, bonds, liquid cash, real estate, and more.
  2. Balancing Risk and Reward: Risk management is vital when building an investment portfolio. Every investment carries inherent risk, and the goal is to balance investments between potential returns and your risk tolerance.
    The art of diversification is being able to spread your investments across various asset classes and sectors to mitigate risk. A well-diversified portfolio helps to weather market fluctuations and safeguard your wealth.
  3. Goal-Oriented Approach: The science of managing investments is never a one-size-fits-all approach. Your goals are unique, and your investment strategy should reflect that.
    Are you saving for a child’s education, investing in property, planning for retirement, or simply seeking to generate a hard and fast profit return? Understanding your goals allows for the creation of a targeted portfolio that meets your personal needs through specific asset classes and investment strategies.
  4. Performance Evaluation and Rebalancing: The investment environment is dynamic and interchangeable, and so too should your portfolio be. Regular performance evaluation helps assess if your investments are on the right track to meet your goals.
    This may include comparing your portfolio’s performance to relevant benchmarks and timelines that you have set yourself and adjusting as needed. Rebalancing your portfolio periodically ensures it maintains the desired asset allocation, particularly after market movements cause imbalances.

 

4 Reasons Why Efficient Wealth Excels in Investment Management

At Efficient Wealth, we take immense pride in being a leading investment management team in South Africa. Our team of specifically selected, qualified professionals is dedicated to building personalised investment strategies that put your wealth potential above all else. These are only four examples of what sets us apart from the average financial investment team:

  • Client-Centric Approach: We will procure a deep understanding of your unique financial situation, goals, and risk tolerance. There is no “duplicated” approach at Efficient Wealth.
  • Proven Track Record: Our experience and expertise allow us to navigate complex markets and identify investment opportunities that align with all your objectives.
  • Risk Management Expertise: We are masters at mitigating risk through intelligent diversification strategies and ongoing portfolio monitoring and adjusting.
  • Transparency and Communication: We believe in clear and consistent communication, informing you of your portfolio’s performance and any adjustments as they are made.

 

Investing in your future is a critical decision for both you and your loved ones. At Efficient Wealth, we empower you to make informed choices with confidence. Contact us today and let our expert team guide you on your path to financial success.

The Role and Importance of Stockbroking in Investment Strategies

The path to long-term financial security is paved with informed decisions and strategic investments. Stockbroking plays a vital role in this journey, acting as a bridge between investors and the often-complex world of financial markets.

Understanding the functions your stockbroker brings to your overall financial position may enhance the overall performance of your investments. You can make informed choices about incorporating stockbroking into your financial portfolio and choose a team of professional financial advisors to navigate you through the complexities of investing in this potentially profitable financial strategy.

 

The Basic Functions of a Stockbroking Professional

A stockbroker essentially acts as your intermediary in the investment arena. They provide you with access to a vast marketplace of securities, including stocks, bonds, and derivatives. Modern stock exchanges are a complex mix of constantly fluctuating prices, trading exchanges, and complex regulations. Stockbrokers are your guides through this sometimes-hostile environment. Their basic functions encompass:

  • Market Research and Analysis: Reputable stockbrokers conduct thorough market research and analysis, providing you with valuable insights into various investment options. This empowers you to make informed decisions based on market trends, company performance, and industry outlooks.
  • Portfolio Management: Some investors prefer a hands-on approach, while others seek guidance in managing their investment portfolios. Stockbrokers can offer portfolio-management services, tailoring investment strategies to your risk tolerance and financial goals.
  • Regulatory Compliance: The world of finance comes with intricate regulations. Stockbrokers ensure all your investment activities adhere to these regulations, protecting you from potential pitfalls, severe tax penalties, and more.

 

Building a Robust Investment Strategy on the Stock Exchange

Including stockbroking as part of your financial strategy offers several significant benefits:

  • Expertise and Guidance: Stockbrokers possess in-depth knowledge of the financial markets and investment vehicles. They can help you navigate complex financial instruments and develop a sound investment strategy aligned with your long-term goals.
  • Access to Diverse Markets: Through a stockbroker, you gain access to a wider range of investment opportunities, including international markets, which can diversify your portfolio and potentially mitigate risk.
  • Time Efficiency: Financial markets are dynamic, requiring constant monitoring and analysis. Stockbrokers free up your valuable time by handling research, order execution, and portfolio management tasks.

 

Effective, Efficient Wealth

When it comes to choosing a stockbroker, reputation and experience are essential. At Efficient Wealth, we are leaders in the financial services industry, renowned for our commitment to client success. We offer an ideal long-term partnership to manage your financial strategies, including stockbroking, for example:

  • Client-Centric Approach: At Efficient Wealth, we endeavour to understand your unique financial goals and risk tolerance. We tailor investment strategies to your specific needs, ensuring your portfolio aligns with your aspirations.
  • Experienced and Qualified Team: Our team has been specifically selected for their expertise. We are highly qualified and experienced stockbrokers, equipped with the knowledge and expertise to navigate even the most complex market conditions.
  • Advanced Trading Platforms: In consultation with one of South Africa’s leading stockbroking firms, we offer access to state-of-the-art trading platforms, empowering you to monitor your investments, make informed decisions, and execute trades seamlessly.
  • Unwavering Integrity: We maintain a reputation for irreproachable ethical conduct and transparency, ensuring your investments are managed with the utmost care and integrity.

 

At Efficient Wealth, you gain access to invaluable expertise, diverse investment opportunities, and complete peace of mind. Take charge of your financial future! Contact us today to explore solutions for smart stockbroking investments.

The Importance of Business Assurance in Today’s Competitive Landscape

In today’s often unpredictable business environment, dealing with risks and ensuring smooth operations are critical for success, especially if a highly unlikely or unexpected event occurs. However, as a competent safety net, business assurance is always there to assist.

Business assurance is a comprehensive approach for businesses that encompasses various strategies, processes, and measures designed to mitigate these risks and optimise performance across all facets of your organisation if an untoward event occurs.

Today, the financial experts at Efficient Wealth will investigate the intricacies of this safety net and offer vital strategies and processes to safeguard you and your company.

 

What is Business Assurance?

Business assurance is not a single activity; it is an ongoing process that provides independent and objective oversight of your business in the event you or an essential staff member becomes disabled, suffers a critical illness diagnosis, or passes away unexpectedly.

It involves a systematic evaluation of controls, processes, and procedures to identify potential weaknesses and areas for improvement and provide sufficient financial assurance cover for these unexpected events.

Proactively addressing these issues and having financial back-up in place, in the event these events occur, means you can minimise disruptions, safeguard your financial health, and achieve your strategic objectives if you are no longer in control.

 

Important Strategies and Processes of Business Assurance

Here are some important strategies and processes involved in business assurance:

  • Risk Management: A core aspect of this assurance is identifying, analysing, and mitigating risks. This requires creating a risk register that outlines potential threats, their likelihood of occurrence, and the impact they could have on your business. By understanding these risks, you can develop effective mitigation strategies to minimise their disruptive potential.
  • Internal Controls: Strong internal controls are the foundation of any effective assurance framework. These controls ensure that your business operates efficiently, adheres to regulatory requirements, and safeguards its assets, regardless of who is in charge.
  • Continuity Management: Continuity management is about finding solutions and maintaining processes after the event. Analysing how different functions within your organisation operate means that you can identify inefficiencies or shortcomings should an event prevent a critical member from performing their duties.

 

Benefits of Implementing Business Assurance

Here are a few benefits of business assurance:

  • Enhanced Risk Mitigation: A robust business assurance policy through an expert financial provider helps identify and address potential risks before they escalate into significant problems, and it is always better to implement these assurances before the worst occurs.
  • Optimised Performance: By identifying inefficiencies and shortfalls in your processes, you can streamline operations and optimise performance with or without key members of staff. This ensures the fluent running of operations and administration, maintains turnover, and sustains profitability. However, should this not occur, business assurance can be the safety net that keeps your doors open.
  • Stronger Governance: Having an assurance safety net in place creates a culture of strong governance within your organisation. By providing independent oversight and promoting transparency, it helps build trust with stakeholders, investors, and employees.
  • Improved Decision-Making: The insights learned from these processes and knowing that there is sufficient finances to survive equips management teams with the confidence to make informed business decisions.

 

Efficient Wealth: Creating the Safety Net Beyond Tragedy

At Efficient Wealth, our offerings include:

  • Key person assurance cover
  • Preferred compensation
  • Deferred compensation
  • Buy-and-sell agreements
  • Business contingency planning
  • Loan account cover
  • Effective, sound advice from qualified professionals

 

If you are looking for complete business assurance and a competent safety net, contact us today.

Securing Peace of Mind: Understanding Life Assurance

Life is full of uncertainties, but protecting your loved ones financially should never be one of them. This is why life assurance is a vital part of any financial portfolio, offering a safety net and peace of mind for your and your family’s future. But what exactly is this assurance, and how does it differ from other forms of insurance?

 

The Fundamental Focus of Life Assurance

Life assurance is a long-term financial product designed to provide a payout to your designated beneficiaries upon your passing. In simpler terms, you pay regular premiums, either monthly, quarterly, or annually, to a financial services provider. In return, the financial institution guarantees a lump sum payment to your beneficiaries when you pass away. This payout can be used for various purposes, such as covering funeral expenses, paying off debts, or ensuring your family’s financial stability.

 

Life Assurance vs. Life Insurance: The Important Differences Explained

While the terms “life assurance” and “life insurance” are sometimes used interchangeably, there are crucial distinctions between the two, for example:

  • Coverage Period: This assurance typically offers lifelong coverage, meaning it remains active until your passing. Conversely, life insurance often covers a specific period – called term life insurance – or until a certain age – commonly named whole of life insurance.
  • Investment Potential: Some assurance plans have a built-in savings component. A portion of your premiums may be invested, growing in value over time and potentially increasing the payout to your beneficiary. Term life insurance generally does not offer these opportunities.
  • Premiums: Due to the guaranteed payout and longer coverage period, assurance premiums tend to be higher than term life insurance premiums.

 

Long-Term Benefits of Life Assurance

This is how life assurance provides value beyond just a death benefit for your loved ones:

  • Financial Security: The payout ensures your loved ones can maintain their lifestyle and meet financial obligations even in your absence.
  • Estate Planning Tool: Life assurance can be a valuable estate-planning tool, helping to minimise tax burdens on your beneficiaries.
  • Forced Savings: Regular premium payments can instil financial discipline and help accumulate wealth over time – if there are investment-based plans added to your portfolio.
  • Peace of Mind: Knowing your loved ones are financially protected brings immense peace of mind, allowing you to focus on living life to the fullest.

 

Why Should You Consider Efficient Wealth to Add Assurance to Your Portfolio?

At Efficient Wealth, we understand the importance of safeguarding your loved one’s financial future. We offer a comprehensive range of life assurance products tailored to your specific needs, budget, and risk tolerance. Consider these factors when choosing your financial advisor:

  • Experienced Advisors: Our qualified advisors will guide you through choosing the right assurance plan, ensuring it seamlessly integrates with your overall financial portfolio.
  • Competitive Rates: We leverage our strong relationships with leading insurance providers to secure the most competitive rates for your assurance plan.
  • Exceptional Service: Our goal is to develop long-term relationships with our clients, providing ongoing support and ensuring your assurance plan remains effective throughout your life and beyond.

 

The Circle of Life Completed through Efficient Wealth

Life assurance has never been just about death; it also includes living a life filled with confidence, knowing your loved ones are protected even after your passing. Choose Efficient Wealth as your life assurance partner for your and your family’s peace of mind. Contact us today and let us help you secure the future you deserve.

Local equities: Opportunities for the patient investor?

Eben Louw, CFA: Portfolio Manager, Naviga Solutions

Over the past few years, South African (SA) equities have seen significant foreign outflows and extreme bearish sentiment from the global investment community. This was amid an environment that supported a shift away from risky markets, and various local headwinds or own-goals. The 2023 Alexander Forbes Large Manager Watch Annual Survey showed that even local asset managers have significantly down-weighted their allocation to SA equities over the past 5 years, holding just under 40% compared to the long-term average of 55%.

This bearish sentiment and continued outflows have resulted in depressed valuations. Based on a forward price-to-earnings ratio, the JSE is currently trading almost 30% cheaper than the level it typically trades at compared to emerging market peers, and close to 40% cheaper than the typical level compared to global equities (MSCI World). Your investment entry point i.e., the price you pay, is one of the most important drivers of future returns. Therefore, the current discounted valuations increase the likelihood of outsized returns in the future.

While short-term drivers may look uncertain, small catalysts or shifts in sentiment can result in unlocking significant value from local equities. This includes the continued improvement and stability in power generation, improvements at Transnet and increased volumes through port and railway services, and even just fair and free elections on 29 May 2024. Furthermore, improving global growth, a global interest rate cutting cycle, a potential shift to emerging markets, and a weaker US dollar are just a few likely global factors that can significantly uplift local equities.

For the patient investor, local equities offer strong return potential because of its attractive valuations and a wide range of potential catalysts. While you wait, you will also have the benefit of capturing dividend yields of between 5 and 10% from high-quality companies. By partnering with the experts, you will ensure that your portfolio makes the most of local equities opportunities.