It's a new year and, as customary, I'm sharing a couple of insights that I believe will shape the stock market, our economy, and the world we see around us every day.
2017 was a year dominated by two themes.
The first one being, politics, drove the South African economy, investor sentiment and our currency.
The second was probably a symptom of the first. Because politics dominated everything in 2017, there was only a handful of stocks that really performed well. And these were large cap, offshore companies.
I foresee 2018 to buck this trend.
In fact, I believe in 2018 the markets and our economy will be driven by macro-economic factors.
Here's what I see 2018 offering investors:
Prediction #1 – Technology will reign supreme
We have a boom in cryptocurrencies, the largest taxi service in the world is virtual and the largest company in the world is a technology company…
Even more importantly – we’re seeing traditional cars being replaced with electric cars. And as technology improves – this will happen even faster.
Sales for electric cars soared 63% in the three months ended September 2017, hitting 287,000 cars. That’s an annual rate of more than 1 million electric cars. Just like most technologies, as the volumes rise production costs fall. Battery production costs are already down 80%!
Similarly, I expect this year to bring new commercial applications that’ll bring block chain and other financial technologies to the mainstream.
This means investors should be looking at technology companies, and those firms that are applying their knowledge taking pure commodities and turning them into value added products…
Prediction #2 – Politics will give the South African economy a breather and growth will return
With Cyril Ramaphosa as the new ANC president, the pressure on Zuma to step in line will increase. If Zuma isn’t impeached this year, I believe we’ll at least see more concerted efforts to curb corruption. Already I’m seeing more court cases taking positive turns and holding government to account.
Thanks to this, I believe politics will take a bit of a back seat this year – and the South African economy will recover.
Interest rates are low. Inflation is low – and with the rand as strong as it is now, I expect inflation to stay below 5.5% for the first six months of the year. That means interest rates should remain low.
And perhaps the most important aspect of more stable political situation is that CONFIDENCE returns for consumers and investors.
Improving retail sales a sign of economic recovery
Francois Joubert built his property empire using other people's money.
He bought his first property when he was a broke student with less than R20,000 in the bank using this method, and he hasn't looked back since.
Today, at just 27 years old, his property portfolio is already worth over R3.585 million.
We’re already seeing it with four consecutive months of increasing car sales, and recovery retail sales.
I foresee this trend will continue in 2018. That means that local companies that have been downtrodden in the past year will shine again – whilst offshore companies will probably take a bit of a backseat…
Prediction #3 - Commodities will have a good year
Commodity prices tanked in 2014, and have been at low levels ever since.
But, 2017 saw the first inklings of a recovery.
And that recovery is set to continue in 2018.
The index of commodity prices shows the big dip – and upside potential!
Between 2014 and 2015, commodity prices practically halved.
Since then there’s been a recovery of around 30%-40%.
But commodity prices would need to increase another 50% to recover back to 2015 levels.
Lower prices over the past three years have led many miners to can expansion plans, dropping exploration and decrease investment. This means that commodity supply is under pressure.
The only way mines will start spending again is with higher prices. And that’s what we’re starting to see now.
Commodities I’m positive on are aluminum, copper, energy coal, and platinum. Gold, palladium, iron ore and oil are all at high levels, and might see a pullback but I expect them to end off the year positively.
When looking at SA based companies, I urge investors to make sure they invest in mines that are empowered – and will not have issues with BEE laws and a new mining charter.
Other than that, I am positive on BHP Billiton and Anglo American – with mainly offshore operations…
Here’s to a great 2018
Here’s to unleashing real value