At the time of writing this article the Rand is trading at about R 14.90 against the US Dollar. Only 2 weeks ago it was trading at R 15.40, the worst level in almost 2 years. This depreciation led to the customary emotional outcries and our lines were ringing with concerned clients wanting to confirm that their offshore exposure is adequate and whether it shouldn’t be increased. Some clients also, with a lot more certainty than 3 months ago, prophesied a downward spiral in our currency. Isn’t this what supporters said of the Springboks, i.e. that they will NEVER beat the All Blacks again?
With the gift of hindsight to my disposal, I had a look at the most extreme periods of de-valuation of the Rand since 1992, shown in the graph below. For a period to be included in the graph the rand had to depreciate by more than 20% in less than 12 months. Our currency is too volatile to include periods where it has decreased by more than 10% (if happens frequently). By the way, when we talk about a depreciation of the rand of 20%, we actually mean that the Dollar has APPRECIATED by 20%, it sounds like the same thing, but isn’t. If the Rand depreciated by 100% against the Dollar, it would mean that the Rand is worth Zero, but if the Dollar appreciated with 100% against the Rand (which happened in 2000/2001), it only means that I must have twice as much Rands to buy one Dollar.
There are a few things that stands out from the table above:
Before I give you insight into what I think this currency weakness means for you as the investor, let me just be clear that I DON’T know if we have reached the end of this downward cycle and that nothing in investments are ever CERTAIN. If we however take note from what happened in the past, the following points is something to consider:
When making investments decision remember that when a decision feels to easy or obvious it is usually incorrect!
Although all possible care was taken in the drafting of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone planning on taking any financial action based on this document, is strongly advised to first consult with their personal financial advisor. ProVérte Wealth & Risk Management is an authorised financial service provider with FSP no. 5966.
True to company culture, Samuel strives to build solid long term relationships with clients and has a meticulous way of identifying needs, defining goals and compiling an executable plan to reach one's goals. He firmly believes that one has to be a specialist in one's field to be able to add value, and continuous training & education is therefore paramount. To be objective and to have an independent approach to a client's planning is critical to make a difference.
Born & bred on a farm in the Montague region, Samuel matriculated in 2001 from Montague High School. He completed his BComm Honours degree in Business Management as well as his Postgraduate & Advanced Diploma in Financial Planning. Samuel is a CFP charter holder. Apart from a short stint at an agricultural company Samuel has spent his whole working career with ProVérte. Samuel is a shareholder and valuable member of the board of directors of ProVérte.