As South Africans, the turmoil over the first few weeks of July has affected us all. While some of us have grappled with the emotional turmoil, others have seen their jobs and livelihoods literally go up in flames. We express our deepest sympathy and thoughts with all those affected.
This has all been happening in the midst of a global pandemic and many may be wondering how this turmoil may affect their investments. Although there is no crystal ball that can predict the future, we can look to the past as a guide through these uncertain times, while acknowledging that no two events are the same. That said, a study of the past can provide food for thought at very least.
Unfortunately, unexpected dire events occur more frequently than we probably like to admit. South African specific events include the Soweto uprising in 1976, the Rubicon speech in 1985, assassination of Chris Hani in 1993, more recently we’ve had Marikana in 2012 and “Nenegate” in 2015.
When assessing the impacts of such events, we have focused on SA Equity and the rand. We assess how far the equity market and the rand depreciated from the beginning of the event, as well as how long it took to recover. Ideally, we consider daily data, as this allows for a far more accurate assessment of the impact of events. Unfortunately, daily data has only been available for equity since the end of June 1995, while daily rand vs. US dollar exchange rate has been available since the beginning of 1971. Where we don’t have daily data, we use monthly data.
Event
Rand
Equity
Soweto uprising
(16 Jun 1976)
Barely depreciated, and returned to same level by end July 1976.
Based on monthly data, SA equity markets fell by almost 9% in June 1976, contracting by over 23% by August. The markets took 15 months to recover, returning to the end May 1976 level in August of 1977.
* Monthly data
Rubicon Speech
(15 Aug 1985)
Depreciated almost 30% vs dollar, only recovering to levels prior to the speech on 27 Jan 1986 (over five months later).
SA equity markets did not fall over the time of the Rubicon speech.
* Monthly data
Chris Hani
assassination
(10 Apr 1993)
The rand did not weaken vs the dollar at the time of the assassination.
SA equity markets did not fall over the time of the assassination of Chris Hani.
* Monthly data
Marikana
(16 Aug 2012)
The rand depreciated by 3% post Marikana, but recovered to prior levels by 7 September (under one month).
Markets barely fell in response to the Marikana incident, and were higher than 16 August within three days.
Nenegate
(9 Dec 2015)
The rand depreciated by 16% post the firing of Minister Nene, and took over four months to recover, finally trading stronger than 9 Dec on 13 April.
The JSE All Share only fell by 3%, and had recovered within four trading days.
Zuma unrest
(8 July 2021)
The rand weakened by 2.4% from 8 July, and has not yet recovered to those levels.
SA equity markets did not trade weaker from 8 July to last Friday, 16 July 2021.
Source: Bloomberg for daily data, University of Cape Town for monthly data.
As can be seen from the above, the rand does not respond in a uniform way to calamities. Looking to equity, we must go back to 1976 to find a local calamity that had a substantial impact on equity markets. In most examples above, equity markets seem to emerge unscathed. This time seems to be no different. Does this mean the world doesn’t care? Unlikely. We have seen extensive coverage of the riots and looting across international news channels.
This then begs the question – why have the markets barely reacted to the uprising?
Three factors come to mind:
- Firstly, South Africa is a small portion of the global economic production (less than 0.4% of global GDP), and therefore there are many other forces at play in the interconnected global markets. Therefore, to be able to isolate the exact South African impact is almost impossible and is diluted / influenced by a large assortment of factors. The truth is that US jobs data can have a larger impact on our markets than most things that happen within our own borders. Therefore, any future weakening is most likely to be driven by offshore factors.
- Secondly, our market has many corporates who generate a large portion of their earnings offshore (the rand hedges), and therefore these offshore earnings may be considered more valuable in times of local instability. Coupled with any rand depreciation that occurs, this can result in these shares strengthening, bolstering the local equity market.
- Lastly, many foreign investors have already exited South Africa given the lack of growth coupled with finding more appealing opportunities elsewhere. This may have possibly resulted in less pressure on both the rand and local equity market as there were no foreigners running for the door.
“So, what now?” you may be asking. As stressful as the last few days have been, when it comes to investing, time is your friend. Uncertainty can trigger a desire to make a change, however investors need to look to the term of their investment goals, remain focused on these objectives, and try their best to ignore the bumps along the way.
Simply put, your best action is inaction – stay the course. In addition to this, diversification can be considered the only free lunch in investing. Therefore, being exposed to a well-diversified fund aligned to your investment goals remains important.
In times like this, the age-old adage that time in the market is far more valuable than trying to time the market remains invaluable.
This article was published by Analytics Consulting in July 2021.
Analytics Consulting is an Authorised Financial Services Provider, FSP: 18490.
