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Black Monday … a dress rehearsal of things to come?

This week saw trillions wiped off global markets in a very short space of time as investors panicked over the developments in China. By the end of the week some stability was restored mainly in US but other markets, especially emerging ones, were left battered and bruised. South Africa was a victim of the carnage. Was this a dress rehearsal of things to come? Or are we through the worst? What we can learn from this week is how volatile things are around the world. So what are 3 concerns for South Africans in the face of this risk?

A weaker rand

The rand easily found R14 to the dollar in no time before settling back to its current range. This showed how vulnerable our currency is during a panic. This has a knock on effect on our imports which in turn impacts on our inflation resulting in more pressure on households.

Increase in interest rates

The Reserve Bank has been very hawkish over the rising inflation rate and we are already in an upward interest rate cycle. It is likely that interest rates will move upwards which again adds more pressure on households.

The risk of losing capital

The stock market has corrected during the week but by no means is the risk off. Valuations are still very high relative to the fundamentals and returns will be affected. In the short term you can expect big swings as markets navigate through the uncertainty.

So what can we do?

It is far easier to change your sails before the storm than during one.

This week sent out a strong signal to all of us. We need to get our personal finances in order, curb spending and get debt under control. Yes, it’s about tightening your already strained budget and squeezing out whatever you can, diverting the savings to pay off debt. In the short term the savings on high interest bearing debt will be a much better bet than the probable yield on the markets.

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