- As a South African investor, do I convert my Rand into Dollar at R15.55/$ and invest offshore?
- Do I start buying the heavily oversold commodity shares like Anglo American, Amplats, Impala, Harmony, Kumba etc?
My feeling was that the Rand will find it difficult to strengthen significantly given the political situation in SA as well as the risk of a downgrade of SA's debt to junk status. I also thought that as an investor into the commodity shares, the return on these shares, 5 years from now should be good.
On the first point, the Rand collapsed to R17/$ early in the year but currently (in mid April) it sits at R14.50. So after a 9% weakening, it strengthened almost 7% to the US$ year to date.
On the second point, resources shares shot up faster than you could invest in them. Anglos 104%, Amplats 118%, Impala 87%, Harmony 246%, Kumba 152% and so it goes on.
For me the sort of clarity gained by these two outcomes can be described as significant. Why? because of the following:
The Rand
If you read my posts going back a couple of years, you will see that my sentiment towards South Africa turned more and more negative. I saw the corruption and arrogance of one man, Zuma, impacting the credibility of South Africa as a nation and knew that the cancer would spread until it was cut out. The problem was that the removal of this cancer could only be done by politicians with the support of the media. If the Nene and Nkandla debacles were not taken up by the DA, EFF and Media, it would have disappeared. The "one man one vote" would not have changed things.
The currency of a country is an accurate indicator (over the short term), of international sentiment towards the country. If you make a mistake, your currency will weaken, and if you do something right, your currency will strengthen. This will only happen over the very short term. Over the longer term, economic fundamentals will determine the level of the currency.
So to me, the Rand strength indicates that Zuma is losing power and that we will soon have a new leader in SA. So even if we get a credit downgrade or economic blowout and the Rand goes back to R17/$, it will not be political. (You can clearly see that I can accept free market movements but not political interference).
Commodities
The significance of the bounce in commodity shares is that we have reached the turning point. A free fall is never nice because of the uncertainty as to where it will stop. Uncertainty is the worst scenario for any investor. So as I have said before, if you are not in the market, you will never get in. How difficult is it to invest in a company that has jumped 104% in 2 months!
Conclusion
For me the great take away from the issues regarding the Rand and the Resources, is that I feel some sense of control returning. I know that there will always be corruption in politics and we will play this game again. I also know that there will be another collapse in some asset class but for now I feel more positive.
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