NFB FINANCIAL UPDATE Issue64 October2012
FROM THE CEO’s DESK
W
hy does Mr. Malema keep popping up? Probably because I would suggest the ANC are so busy fighting and jostling for position, influence and survival at an individual level, that scarce attention is being paid to very dangerous and manipulative forces, alienated by themselves and left to their own screwed up devices. I noted several years ago that the danger with politicians was their tendency to think in terms of short term cycles, not surprisingly accurately matching election cycles. This short termism has resulted in damage beyond comprehension and manifests in attitudes that, unfortunately, aren't restricted to this venerated part of the new S.A. It has spread like wildfire to the most vulnerable parts of our population, creating a sense of desperation and expectation, easily exploited by the likes of those in search of power, and potentially protection from the law ( - important given past indiscretions) by becoming the de facto law makers. I mentioned recently that whilst Mr. Malema was not a model student, he was by no means stupid, and once again, this is being borne out in his recent actions. He is tuned into the psyche of the masses, happy to stir the pot with scant or no regard to the societal impact. He has embarrassed the incumbent government and organised labour, made promises that he has no way of delivering on and is getting an extraordinary amount of attention from global media, who are always in search of controversy and chaos. This backdrop, whilst potentially manageable worries me and it is indeed these issues which are referred to when the market talks about the importance of diversification both by geography and sector. Concentrated risk is when too much money is focused on only one, or a few, investment alternatives. In South Africa this has been amplified by the historical limitations imposed by Exchange Controls. To a large degree this has been reversed by the significant relaxations introduced over the last few years, making it possible for South Africans to materially diversify investments across global and local bourses, stocks, banks and other investments, making genuine diversification both possible and relevant. This decision is complicated by the difficulty in motivating exactly what to invest in, given the confused state of economies, governments, currencies and markets. Offshore property, which in SA has been a star performer, has seen losses, vacancies, oversupply and generally has been a
terrible asset to have held. And although recently showing some sustained positives, global bourses have disappointed. Cash is desperate in the developed markets, in most cases offering net returns where investors are "paying" the bank to hold your money, and bonds offer low yields and capital risk should current cyclically low rates push higher. Notably, this is also taxable in our hands. A well known global personality recently summed it up brilliantly in saying that today's investors are paying the price of yesterday's reckless borrowers (for Borrowers read, Governments, Banks, Regulators, etc). Another cynical comment I heard, was that the return you received for putting your money in the bank used to be called the Risk Free Return. It's now called the Return Free Risk! We have access, both directly and via a few major business partners, to investments into major offshore shares, and interestingly South African Bank's offshore bonds. These can now be wrapped in an offshore issued product which will achieve tax free returns for South African investors. This opportunity is directed to investors who are prepared to invest for growth with acceptable volatility and risk. For those who do not have the stomach for risk we have solutions which guarantee a tax free return, backed by Major International Banks and corporate, together with moderate (50%) participation in one of two Global indices. The details and relevance of these investments for your portfolio needs careful discussion with your advisors at NFB. This editorial is not intended to urge you to pack for Perth, but it certainly is intended to prompt you to discuss recent developments, revisit what offshore assets are doing, and take advantage of very important tax advantages and a range of solutions which seem to me to be obviously worth some consideration. Overseas investments need to stand on their own. Weakness in the rand, or worse still, major volatility caused by local political or social events, will add to returns (- when measured in rands). I hope I am proved wrong about my expressed misgivings, but as a noted patriot, I have seldom felt the powers that be are losing the plot as currently is the case. Caveat Emptor.
Mike Estment, BA CFPÂŽ CEO, NFB Financial Services Group
IN THIS ISSUE From the CEO’s desk Cash, inflation and growth assets Estate duty
financial services group