September global market commentary:
Major markets end their five-month winning streak
Global markets finally wobbled after a five-month winning streak as most major equity benchmarks lost ground in September. The tech-heavy Nasdaq 100 Index fell by over 10% in three days in early September but recovered somewhat to end the month 5.7% lower. Despite the September wobble, the Nasdaq is still up 31.6% YTD - well ahead of the S&P 500 (5.6% YTD) and the Nikkei 225 (+2.8% YTD in US dollar terms), which are the only other two major equity markets in positive territory for 2020 ...
by Peter Little, Fund Management , Anchor Capital
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Events weighed heavily on financial markets during September. Share markets, exchange rates, commodities, international developments, domestic economic indicators
A pull-back in technology stocks in the USA, possible second wave of Covid-19 infections, fears of a contested presidential election in the USA, talks of an unorderly Brexit and a few more events weighed heavily on financial markets during September.
This trend is expected to continue into at least October – and November if the US presidential election is contested by any one of the two candidates.
The longer-run outlook is a bit different, though. Once a vaccine for Covid-19 is available, the US presidential elections are behind us, economies recover from their lockdowns, and a new set of challenges emerge, financial markets should recover, albeit in different ways.
Indeed, employment numbers in the USA suggest that the economy may recover faster than is currently expected by market analysts. Should this materialize and wage growth occur faster, interest rates may increase faster than is currently expected by analysts, supporting the US$.
Back to September. The US share market (most share markets for that matter) indices were overvalued, driven by the big five shares (Amazon, Alphabet, Apple, Facebook and Microsoft). When excluding these five shares, the indices were at fair value, reflecting the state of the economy.
Indeed, the same exercise all over the world – removing big tech-related companies – paint the same picture. The decline in share indices during September due to the pull-back in these companies’ share prices is to be welcomed as this will better reflect economic fundamentals.
The S&P lost 3.4% in September, still 13.6% higher than a year ago. Similarly, the MSCI All World Equities Index was also 3.4% lower, led by the pull-back in US tech-stocks, aggravated by a second wave increase in Covid-19 infections that contributed to new lockdown restrictions in some countries.
Although the US$ is on a weakening bias, the currency reflected strength during the month as share markets tumbled – due to a flight to safety. This had a negative impact on the price of gold, which declined by 3.9% from month end to month end (the decline was more pronounced during the month, but a recovery occurred at the end of the month).
The price of Brent oil declined by 8.8% due to fears of renewed economic restrictions stemming from a second wave of Covid-19 infections.
In South Africa, the shocking economic growth number (contraction of 16.4% in Q2), coupled with a jobs report indicating that 2.2 million less people earned an income from work in Q2, suggest that policymakers did not know how to contain the spread of Covid-19 infections in a way that will limit the impact on the economy. Signs that some of these workers are again earning an income are emerging, though (e.g. increasing personal income tax collections). But the recovery is much slower than needed, mainly due to the restrictions on companies doing business, which will contribute to a big fiscal deficit.
Courtesy: Multivest Economic Division
Anchor rand view: A weaker rand driven by global rather than domestic events
Figure 1: Rand vs US dollar
The second half of September was characterised by a stronger US dollar, which looks like rand weakness from our vantage point. However, for once, the weaker rand was driven by global factors rather than domestic including market disappointment after the US Federal Reserve (Fed) meeting did not announce further stimulus measures, the 2020 US Presidential Election fast approaching and likely to be an acrimonious election, with some concerns around the smooth transition of power should current US President Donald Trump, who has declined to say he will accept the election results, lose, and Europe experiencing a second wave of COVID-19 infections with some lockdown regulations being strengthened rather than relaxed. Overall, the delayed stimulus, questions around its eventual size, and a resurgence of the pandemic in Europe have ended the trend of a weaker dollar that was benefitting the rand. This, coupled with risk-off sentiment, has seen the local currency weaken rather rapidly to around R17.10 vs the US dollar…
Trump is done.
The latest polling data shows Joe Biden comfortably ahead of Donald Trump in the race for the White House, with his lead well above the margin of error of around 3%. Tuesday’s atrocious debate performance did Trump no favours if the latest polls are to be believed. Trump’s announcement earlier today that he has tested positive for a the “hoax” covid19 virus is possibly the most politically damaging event that could have happened this close to the election. That he and his wife now has to enter quarantine, effectively going on two weeks leave and perhaps longer, has brought his lies and obfuscations around the pandemic into stark perspective, and even his most die-hard followers will find it difficult to justify his earlier stance on the issue, especially that regarding his demands that the country should go back to normal as quickly as possible. But, even though the polls give Biden such a huge lead at the moment, it is unlikely that the opposition will take these numbers to heart, considering Hilary Clinton’s loss the Trump in 2016.
More importantly, though…
The one thing that Donald Trump has achieved in his time in office is to make the world aware of just how powerful a US president can be. But, many of his actions would not have been possible had the Republican Party not controlled the US Senate. This is especially true of the 2018 tax cuts that he got passed. Which makes the battle for the US Congress – The US Senate and the House of Representatives – especially crucial for the markets. A Trump win, combined with a Republican takeover of both Houses would the most bullish outcome for stock markets, possibly the most bullish scenario ever. However, as things stand, it appears that the Senate will be decided by a small margin again, which makes the outcome difficult to call. The House appears likely to remain in Democrat control, which means that they will again control the purse strings. A Democratic sweep of Congress and the presidency, which is highly likely, is bearish for markets, but perhaps only in the short term. Bill Clinton’s first term was marked by similar angst around tax increases as we see now. While those tax increases were forthcoming, it also meant the US government was able to foster perhaps the greatest economic period in modern US history. Once again, a possible Democratic party president will take over a government heavily overburdened by debt. It was similar when Clinton took over from Bush, when Obama took over from GW Bush. And what came after left investors smiling all the way to the bank.
Source: Nedbank Private Wealth
Numbers to remember – Heritage Edition
Drafting a will requires the drafter to give careful thought to a number of important issues.
If you’ve taken the wise step to consult with an expert to have your will professionally drafted, be sure to prepare yourself adequately for the consultation so that you have all the necessary information at hand. Drafting a will is not as easy as it may seem and requires the drafter to give careful thought to a number of important issues. Here’s what to consider before putting your will together:
Your matrimonial property regime
Determine which matrimonial property regime you are married under. It’s always surprising how many couples are not sure what marital regime they are married under nor how it impacts on their ability to testate. Remember, if you are married in community of property, you and your spouse own the joint estate in equal, undivided shares. This means that, when it comes to testation, only 50% of the joint estate is yours to bequeath. If you are married out of community of property with the accrual, bear in mind that the accrual contract continues to apply after your death. This means that your surviving spouse may have a claim against your deceased estate for their share of the accrual to the extent that it is less than yours. This could create liquidity problems in your estate if you intend leaving some or all of your assets to a third party. In addition, be sure to check your antenuptial contract as it may be that certain assets were specifically excluded from the accrual at the time of drafting the contract.
A guardian for your minor children
If you have minor children, choosing a suitable guardian for them is a priority, albeit often a difficult and divisive decision to make. Many couples struggle to find common ground when choosing suitable guardians for their minor children, so be sure to have these discussions before meeting with your financial advisor or fiduciary expert. When choosing a guardian for your children, give consideration to factors such as their existing relationship with your children, their financial stability, their morals and values and to what extent they align with yours, their religious beliefs, where they live, and also their willingness to take on the responsibility. Most importantly, have the discussion with the proposed guardians before meeting with your financial advisor to ensure that they agree to the appointment. For the purposes of preparing your will, your advisor will need the full names and ID numbers of the guardians.
Choose trustees for your testamentary trust
Also important for those with minor children is to set up a testamentary trust in your will for the safe custody of any assets intended for your minor children. Choosing appropriate trustees for the trust is an important task as it will be their responsibility to ensure that your wishes are carried out after your death. Generally speaking, three trustees is an appropriate number with one of the trustees being an independent person, such as your financial advisor, attorney or fiduciary expert. Appointing too many trustees can make the management and decision-making in the trust cumbersome and slow. Once again, for the purposes of drafting the will you will need the full names and ID numbers of the nominated trustees.
Another important decision you need to make is that of choosing an executor. While you may be tempted to appoint a close family member, bear in mind that the job of executor is an administratively intensive and time-consuming one that requires a certain level of financial and legal knowledge. Further, keep in mind that the job of the executor begins immediately after one’s passing, which means that they may need to assume their responsibilities while in mourning. Also bear in mind that family relationships and dynamics change over time, and if you’ve nominated a close family member as executor conflicts of interest may arise which is never ideal.
Your assets and liabilities
Be sure to make a full inventory of your assets and liabilities, including business interests, trusts, jewellery, artwork, immovable property, investments, retirement funds and any valuable moveable property. It is essential for your financial advisor or fiduciary expert to have full sight of your assets and liabilities so that he can draft a will that aligns with your overall estate.
If you’re setting up a testamentary trust, be sure to identify exactly which assets you intend bequeathing to the trust. The purpose of a testamentary trust is to house assets that you intend bequeathing to your minor children. Bear in mind that, in terms of our law, minor children lack contractual capacity and are therefore unable to inherit. In the absence of a testamentary trust, any assets bequeathed to your minor children will be administered by the Guardian’s Fund until they are old enough to inherit the assets.
List your heirs
Your heirs are those people who stand to inherit the residue of your estate, which is whatever assets are left after all your debts, the cost of administration, and any legacies or special bequests have been distributed. When drafting your will, your advisor will need the full names and ID numbers of your heirs. Importantly, if there is an heir that you do not wish to benefit from your estate, you need to make a note of this.
Make a note of any special bequests that you would like to leave a person which could include a cash amount, a car or a piece of artwork. However, it is important to first understand the implications to your estate before making special bequests in your will. When distributing your assets, your executor will first use your assets to pay the costs of administering your estate and to pay your creditors. Thereafter, your legatees will receive any legacies due to them in terms of any special bequests you have made. Lastly, whatever is left in your estate will be awarded to your heirs. As such, it is important to determine whether there is sufficient liquidity in your estate to give effect to your wishes, and this is something your advisor should be able to assist you with. Once again, be sure to obtain the full names and ID numbers of any legatees you intend naming in your will. Bear in mind that many family members bear the same family names and initials, so be absolutely clear when naming your legatees.
Life policies and retirement funds
Generally speaking, it is advisable to make no mention of any life policies or retirement funds in your will as it can cause confusion when it comes to the beneficiary nomination. If you have nominated beneficiaries to your life policies, while the proceeds will be considered deemed property in your estate for estate duty purposes, the proceeds will be paid directly by the insurer to your nominated beneficiaries. Where you have any approved retirement funds in place – including pension, provident, preservation or retirement annuity funds – bear in mind that it is the trustees of these funds who make the decisions regarding the distribution of the funds in the event of your death.
Assistance with the drafting of your will offered by Taxlex
Taxlex have a professional financial and legal team to assist you with the drafting of wills, administration of deceased estates and acceptance of trustee appointments and trust administration at competitive rates.