10X founder Steven Nathan shares his expertise on current developments in local and international markets, with the decisions of policymakers at the center of the scene. The South African Reserve Bank, led by the highly rated Lesetja Kganyago, has kept interest rates unchanged as central banks end world record interest rates. The fear is that inflation will skyrocket – it is, but the risk of rising interest rates could be an unnecessary slash in confidence for an already dire South African economy. China as an investment destination and the results of Adapt IT, which were released earlier today, are also discussed. Finally, Nathan discusses the benefits of passive investing in the market. – Justin Rowe-Roberts
Steven Nathan to find out if he would have kept the rates unchanged:
I will have. As you say, look around the world – number one, interest rates are at record highs due to the very rapid monetary response and the type of central bank response to the pandemic. Then we saw different countries doing quite different things. If you look at the United States, still no rate hike this year and they have one of the fastest growing economies. Their unemployment fell below 5%. When you look at many emerging markets – where economic growth is still lower than it was in 2019 before Covid – they have raised rates quite aggressively. In South Africa, we are definitely in the emerging markets camp – we know our growth is weak, our demand is weak, but there are inflationary pressures and there are inflationary pressures actually all over the world. It’s interesting. Inflationary pressures don’t come so much from demand, but because there is a shortage of supply – there are supply chain bottlenecks. In South Africa it’s great that we can have interest rates at low levels and hopefully they stay low to help stimulate economic growth. But on its own, this is not enough.
On China as an investment destination:
I’ve always had the point of view and it’s a personal point of view, you want to be well diverse. When I look at the investment, I kind of have two big buckets. The only bucket is your long term investments, your banking investments. Where you don’t want to speculate too much. You want to try and get good returns, but don’t be too greedy. There I would go for a broad diversification. So I wouldn’t necessarily have all of my money in China or all of my money in the United States. There, you want diversification by geography and also by asset class. So not just stocks, but a little bit of property, bonds, etc. Then you have your more speculative bucket. There is always a bit of speculation in all of us. Some people have more and others less. But if you had that kind of need to fill, it would represent a much smaller portion of your overall wealth. I would say no more than 10 percent, unless you are a very good trader. There you might want to buy a few stocks – or a sector like China, but I would be wary of China. I think we’ve talked about it a lot and a lot of others have. I mean, the risks in China have increased tremendously. Part of that was reflected in the share price. But we don’t if that’s all of it. So I would be pretty cautious of China as an investment right now.
On the defense of passive investment:
I am a huge fan of indexing and have been an advocate for indexing for about 15 years in South Africa. There is always a different argument for indexing and why it could be good or bad. This argument that index funds drive up the prices of large caps does not hold water, because what an index fund does is simply buy the index in proportion to the current weights. So let’s take the FAANGs – Facebook, Apple, Amazon, Netflix, and Google – suppose that is 25% of the S&P 500. So if you are investing in an S&P 500 index fund, then all an index fund would do is invest proportionally in the market. It would therefore be equal. They would not favor large caps over small ones. So I certainly do not accept this argument. There have been a lot of arguments about index funds and how they’re going to cause inefficiencies and it’s going to be bad.
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