Sunday, 29 May 2016

[Fun] I can't invest now because...

The latest scandal involving Mr. Zuma is the buying of many of his wives' cars with police budget money. We have already experienced Nklanda and Nenegate. South Africa screams political risk (although, I believe this risk is exaggerated). Sure, some have calculated the cost of Nenegate at North of R500bn. This is all short-term market fluctuations, of course.

Many want to take money offshore. Is this the best solution? It certainly isn't the only solution, that's for sure. We can look north to our neighbours, Zimbabwe, for some clues. What would have happened if you invested in the ZSE industrial index? Would you have lost all your money? Inflation was rampant, the Zim Dollar worthless. Surely, investing in stocks was too RISKY!

Have a look at this chart:

1441.jpg
Wow, stocks revalued in line with the currency and level of prices. If you had stayed in the "safe-haven" of cash, it would now be worthless. I know this is one example, but it shows that investing in stocks is perhaps the best way of hedging against an inept president (Mr. Mugabe, in this case).

Even in USD terms, the market held its value (there is a spike over a couple of days to 600, but my guess this was while the market was working out what was going on in Zim. The point is that the market was pretty flat for the year of all this turmoil).
1443.jpg

Sure, some companies would have faltered and there is still a risk of confiscation of assets but maybe the risk posed to stocks by SA political risk is not as great as people think. As with anything, time will only tell. I thought these charts were interesting, nonetheless.

I got the charts and inspiration from this Financial Times article.