​Press Room

Our new Finance Minister & the economic crisis he has to address

Oct 17, 2018

Our new Finance Minister & the economic crisis he has to address

Surprise, surprise, surprise. I mean it literally: three surprises in quick succession.

First, Finance Minister Nhlanla Nene finally admitted that he had had several meetings with the infamous Gupta family. He was supposed to be the good guy, the Minister who was fired by ex-President Zuma in 2015 for standing his ground in the face of the state capture and nuclear deal sagas. We thought justice had been served when he was re-appointed by President Ramaphosa.

We were still trying to catch our breath after Nene’s shock admission when accusations surfaced that when he was Chairman of the PIC, one of his sons had been awarded PIC funding for a business venture.

Then along came surprise 2. Like a breath of fresh air, President Ramaphosa acted swiftly and decisively, recalling Minister Nene despite him having been a close ally. South Africa breathed a sigh of relief: President Ramaphosa’s anti-corruption crusade credentials were intact.

And finally (we hope!), surprise 3. Without pausing for breath, President Ramaphosa pulled off a somewhat unexpected masterstroke by appointing the respected Tito Mboweni as Finance Minister.

Mr Mboweni was previously Minister of Labour and, before that, Governor of the SA Reserve Bank. Pretty much everyone respects him. Almost more important, his previous service was before the sordid saga of the Guptas and state capture, so he is as close to untainted as South Africa could hope for.

When Mr Nene was fired in 2015, the ZAR plummeted. Last week, when Mr Mboweni was appointed, it strengthened. 

But a word of caution: remember ’Rama-phoria‘? The hope associated with the new President led to unrealistic expectations of how quickly things could turn around.

Let’s learn from that and avoid ’Tito-lation‘. Minister Mboweni is taking over an economy in crisis (see more on this below). He needs to address rampant unemployment, low economic growth, massive social inequality, crippled state-owned enterprises, a divided ANC, and an election in 2019. He will face enormous challenges but it is difficult to think of a better candidate to step into the breech.

Take a deep breath, Minister Mboweni! We wish you well.

(And please, no more surprises!)

How to think about THE economic crisis Minister Mboweni has to address

The South African economy and its fundamentals have been extremely weak for some time: investors have had lower levels of returns over the last 3 years, synchronised across local asset classes (equity, property, and bonds specifically). This makes it difficult for investors and managers alike, irrespective of asset class exposure.

Take heart because…

  • When we look at the longer-term performance of the various investment classes available (as outlined in table below), it is clear that long-term investment has still delivered returns above inflation, highlighting the need for a long-term mindset.



1 YR

3 YR

5 YR








JSE Property






ALBI (Bonds)






STeFI (cash)






ASISA High Equity (Balanced Funds)






ASISA Low Equity (Cautious Funds)






* Periods longer than 1 year are annualised (as at 30/9/2018)
* Returns are gross of any fees and taxes

  • Take a look at the chart ‘JSE ALSI 1-year Rate of Return’

JSE ALSI 1-year Rate of Return


Sources: Thomson Reuters Datastream and NFB Asset Management

  • The lower levels of returns that we are seeing are not unprecedented, and are very often followed by periods of strong returns. The challenge is to have the conviction to stay invested through periods of lower return.
  • The average 1-year change in the JSE is over 12%, going back to the mid-1990s.
  • The 1-year rate of return for SA markets is positive far more often than it is negative.
  • Look at the chart ‘Funnel of Uncertainty: Probability of Negative Returns’

Funnel of Uncertainty: Probability of Negative Returns

Source: NFB Asset Management

  • The longer the period of investment, the narrower the divergence in best and a worst case scenarios.
  • As one goes beyond 5 years, history shows that even the worst case scenario has given a positive return
  • Refer to ‘SA Equity – SA Cash 3 year Rolling Annual Return’

SA Equity – SA Cash 3 year Rolling Annual Return

SA Equity

Sources: I-Net and Old Mutual Wealth

  • In the medium to long term, cash seldom outperforms equity.

Here’s what we advise during this difficult market

  • Retain a long term orientation
    • History shows that in the medium to long term, returns are higher.
    • Don’t focus on short-term returns when making investment decisions.
  • Time in vs timing
    • Timing the market (attempting to buy and sell at the best times) is difficult if not impossible.
    • There is significant empirical evidence that market timing destroys value, whereas long-term investment avoids the ‘fear and greed’ emotions that cloud decision-making when trying to time investment decisions.
  • Limit drawings
    • Wherever possible, reduce drawings during times of lower returns in order to limit the drag on portfolio performance.
  • Where possible take advantage of cost averaging by increasing investments into markets at lower levels
    • Counter intuitively, when markets are not performing, investors have the opportunity to commit funds at lower entry points with beneficial long term results.
  • Cash is not a silver bullet
    • While it is tempting to gravitate towards cash in order to improve the consistency of returns, in many cases after tax cash is sub-inflationary and seldom outperforms equity.
    • Moving into cash means you risk missing out when the market goes positive (and it will!)
  • Don’t deviate from your risk profile, no matter how tempting
    • You need to ensure that the volatility associated with higher risk investment allocations is appropriate for your needs because upside potential comes with downside risk.
  • Diversification is key
    • Ideal asset allocation may vary according to investor needs, but diversification is key to success. 

And just for the record

  • South Africa has the unenviable track record of having had 5 Finance Ministers in the last three years.
  • Refer to ‘New Finance Minister Impacts Rand-Dollar Exchange Rate’ that picks out the date of appointment of each successive Finance Minister together with the rand-dollar exchange rate at the time of appointment going back to the appointment of Chris Liebenberg by Nelson Mandela’s Government of National Unity.

New Finance Minister Impacts Rand-Dollar Exchange Rate

New Fin Minister
Source: Thomson Reuters Datastream and NFB Asset Management