How to invest in SA chaos

There has been no shortage of excitement in South African markets over the last few weeks or so and it has many South Africans investors eying their portfolios and wondering what to expect going into the tail-end of 2016.

The finance minister was charged and the rand weakened – perversely driving up local equity markets – and then reality hit home and markets sold off. This weekend has seen explosive revelations regarding the influential Gupta family and SA banks and we have even seen the head of the ANC Youth League calling for soldiers to take up arms for embattled President Jacob Zuma.

Apart from that, there’s the geopolitical mess in Syria, Russia moving missiles to its borders and into India, Russia wanting to sail warships past the UK this week, North Korea trying its hardest to launch rockets, China flexing muscles globally and US military assets in Yemen coming under attack.

Oh and for good measure … the universities are burning in SA and, somewhere along the line, US interest rates are likely to rise before the end of the year, which might throw global equities into a tail-spin, particularly in emerging markets such as South Africa, where a ratings downgrade is imminent. This might be a problem, but then again, Deutsche Bank might just bring the global financial system down before that is even an issue.

Other than that, everything is pretty peachy.

We here at Moneyweb, don’t quite buy the principle of ‘Guns, Gold and Pumpkin Seeds’ as an investment strategy, so we looked at a few ideas that you could consider amid the chaos:

Diversifying currency exposure
As one of the most actively-traded currencies in the world, a ratings downgrade is going to impact the rand and the political uncertainty is likely to see some significant swings and roundabouts.

I found this interview with leading economist and investment strategist Raoul Pal particularly interesting while researching this article, not so much because he was talking up gold, but because he was talking up the US dollar. For many South Africans, access to actual US dollars is not all that easy, but you could certainly consider looking at the NewWave US Dollar Exchange Traded Note which allows you to use your rands to buy the equivalent to rand/dollar exposure.

The pound is certainly not getting any love at the moment but, considering how hard it has been sold down in the last few weeks, it might be worth some consideration and you can buy an ETN to give you exposure to the rand/pound as well.

Embrace volatility
If you expect chaos, why not invest in it?

The Volatility Index (VIX) has remained stubbornly low – despite the unexpected Brexit developments and the improbable announcement of Donald Trump being a potential leader of the free world and associated nuclear weapons – but if one thinks back to the recent Sanlam iTrade $100 000 competition that Moneyweb participated in earlier this year, the winner actively traded the VIX and did particularly well off it.

Embracing crypto-currency
Whether you buy into the Bitcoin/crypto-currency story or not, there is no question that it is becoming a part of the global financial markets. How many people would have predicted that Bitcoin would rise nearly 170% against the US dollar? If you don’t buy into the US dollar recovery story and can’t force yourself to buy gold, then it might be worth looking at one of the Bitcoin wallets – local operator BitX has been receiving a lot of attention – and parking a few rands in here.

Every good war needs commodities
This is said a little tongue-in-cheek perhaps, but even if we discount the prospect of World War III (or a version thereof), there is enough evidence to suggest that precious metals and food are two hot topics at the moment. On top of this, respected analysts, such as Steen Jakobsen from Saxo, are warning that inflation is going to start coming through now. You can certainly consider the Standard Bank Africa Commodity Index ETN, which gives access to a basket of base and precious metals, energy and agri products.

Buy Alphabet (Google)
We live in fascinating times where we move toward riots so that we can ‘snap a selfie’ and share it with the world and where critical thinking has been replaced by the simple ‘ask Google’ mentality. Morbid, perhaps, but Google Trends shows that the search term WW3 (https://www.google.co.za/trends/explore?date=all&q=WW3) has seen a very significant spike in recent months.

If you need something a bit more concrete, Morgan Stanley just released a list of 30 stocks it expects to do very well in a slowing economy and Alphabet was expected to see it benefit from a 70% growth in video advertising over the next two years.

** The above piece is not intended as investment advice but rather to remind South African investors that as part of the global economy, there are many ways to cushion your portfolio in times of crisis using readily-available tools. Consult a financial advisor if in doubt.

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