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Reichtec January 2017 Newsletter

Tax Year End

There is just over a month to go in the current tax year which ends 28/2/2017, and for most there are a few opportunities which can be used to maximize the tax efficiency within your investments.

RA’s: Individuals can claim RA contributions as a deduction to reduce taxable income. The limits were changed for the 2016/7 tax year which means most people can claim more than in previous years. If you are unsure then please contact me to discuss your personal situation.
Funds MUST reflect with the provider by 28 Feb for the value to qualify as a deduction in the current tax year.

Tax-Free Savings: The annual limit for contributions to the TFSA is R30,000. Although this may be a relatively small amount the benefits will increase over time especially if you are currently having to pay tax on your investment returns.
The cut-off for most providers is a day or two before the end of the tax year

Donations: If you are looking to “move” assets to a Trust or to children etc. you can donate up to R100,000 per year without any donations tax.

Budget 2017

The budget speech next month is likely to present many challenges for the finance minister to try to walk the tightrope between prudent financial management and political factors.
For the first time in many years it seems as if revenue collection (taxes) have been well below the budgeted figures which will probably mean significant increases in tax rates for next year.
Politically the most likely target is the “wealthy” – probably those earning more than R1million per year. Growing inequality is a global trend but is especially evident here in SA.
An increase in VAT would be the most effective way to increase revenue BUT is a very emotive issue and likely to result in significant opposition especially from COSATU.

2017 – Preview

After the volatility and political “shocks” of 2016 we enter 2017 with several key areas to watch both locally and internationally:

Local:

  • Political factors including ANC elective conference in December 2017.
  • Potential ratings downgrade (June or December). Ratings agencies must either downgrade or else remove the negative watch on the rating. (This outcome is largely dependent on economic growth).
  • Possible decline in inflation as farming production increases due to better rainfall.
  • Slight improvement in economic growth – still well below levels needed. Current prediction for 2017 is 1% real growth in SA.
  • Interest rates likely to change very little

International

  • Impact of Donald Trump. Likely to have an initial positive impact on US economy BUT some of the policy proposals do raise concerns with regards global trade.
  • Rising interest rates particularly in America. 2-3 small (0,25%) increases are expected so the biggest impact will be if rates rise faster or slower than “expected”
  • Impact of BREXIT – the UK economy has been resilient thus far but formal exit plan is still to be decided. The biggest impact thus far has been on the value of the Pound.
  • Chinese debt – this is a growing concern as the levels of debt in China have grown tremendously to “pay” for all the infrastructure and other development in China which has fueled the economic growth. Chinese debt is approaching 300% of GDP and is a growing risk.

All things being equal however, the expectation is that portfolio returns in 2017 will be better than seen in 2016. The “average” return for a multi-asset fund last year was probably in the region of 1-2% which is well below inflation.
The Rand strengthened about 12% against the Dollar in 2016 (and a lot more against the Pound) – this not only meant a poor Rand based return on the offshore component of portfolios, but also affected a number of the large local “Rand-hedge” companies on the JSE.
Predicting the direction of the Rand is notoriously difficult in the short term. An Offshore allocation is an important component to diversify risk and certainly at this stage I would not recommend reducing offshore exposure. Remember though that the grass is not always greener on the other side.
It is very easy to be swayed by some of the negative news we are subjected to daily – the key is to try to avoid emotion by having a plan and sticking to it for the long-term. There will always be periods of poor performance but the real losers are those who “panic” and try to make changes in response. In the long term the chances of investment success are significantly improved with “time in the market” rather than “timing the market”.

“A GOAL without a PLAN is just a WISH” – Antoine de Saint-Exupery (French writer)

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