Real Estate Investor Magazine South Africa Real Estate Investor Magazine - May 2017 | Page 7

EDITORIAL VIEW
The Big Property
Conundrum: Junk Status,
Zuma and the Rand
S
mart investors generally don’t fear volatile
markets, as they have already factored in
anticipated macro environment indicators
such as performance of gross domestic product,
employment stats, the inf lation rate, interest rates,
exchange rates, market sentiment and the like.
Some investors could be forgiven, however, for
not factoring in one unknown ‒ the ‘Zuma Effect’.
In March the rand was sitting comfortably at
R12.30 to the dollar and was the best performing
currency for a period. The outlook for the South
African economy was one of slow recovery and
there was reason for optimism in the medium
term.
But then along came President Jacob Zuma.
He suddenly recalled Finance Minister Pravin
Gordhan from an investor road trip in the United
Kingdom for no logical reason other than his
own political agenda. Zuma single-handedly and
completely upset the economic apple cart with
his outrageous and politically-motivated cabinet
minister reshuff le. Two rating agencies, S&P
and Fitch, quickly responded with junk status
downgrades, citing no confidence in Zuma’s
ability along with sudden cabinet reshuff les and
multiple protests.
The rand tumbled to around R14 to the dollar,
which will kick start decline in the rand, and, in
turn, inf lationary pressure, which will eventually
be passed onto local consumers. Zuma’s reckless,
unsubstantiated statements of ‘radical economic
transformation’, ‘white economic capital’ and
‘land expropriation without compensation’ are
common themes in his dialogue, which constantly
create fear and havoc in the markets. Resistance to
Zuma is dramatically increasing, pending another
no-confidence vote; however, while he remains in
power, uncertainty for local markets and investors
continues.
Uninformed investors are likely to react to
Zuma’s radical policies by either selling their
houses, investment properties and other assets,
and disinvesting out of South Africa. Some
investors will emigrate, diversify their assets or
disinvesting out of South Africa. What we now see
is demand for second residency and citizenship-
by-investment options increasing.
In terms of property stocks, there is a more
calculated investment approach as the call to
invest locally or offshore is do ne on property
fundamentals and not on market volatility.
According to investment expert, Ian Anderson,
property stocks have always focused on long-
term property returns and not short-term foreign
exchange volatility.
Yes, we are in for another bumpy ride ‒ again
‒ but it really is a time for cool heads and logical
thinking. As long as your micro strategy is in place,
you will be able to survive any major down swing ‒
or upswing, for that matter. Responsible property
investment takes good understanding of the
markets, good property knowledge, willingness to
put in the effort, perseverance to see it through
in the longer term and being creative in your
plan. Good investors never allow pessimism (nor
optimism) to inf luence their core investment plan.
Successful investing.
NEALE PETERSEN
FOUNDER & PUBLISHER
“Only when you combine sound intellect with emotional discipline do you get rational behavior.”
WARREN BUFFETT
www.reimag.co.za
MAY 2017 SA Real Estate Investor
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