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[TOP STORY] Looking back over 2020 – the lockdown and the rally, and expectations for 2021

In SA ‘we might be okay going into next year’: Nick Kunze from Sanlam Private Wealth.

SIMON BROWN: I’m chatting now with Nick Kunze Sanlam. Nick, I really appreciate your time today and over the course of the year, the early mornings. Jump back to that collapse in February/March, and the recovery. I wasn’t on the trading floor, but it almost seemed too quick. I remember, as we were going into lockdown markets were collapsing and, before we knew it, they were sort of rallying. I’ve got to be honest, I didn’t initially buy into that rally. But perhaps one of the craziest things about this year is that, locally, we are green for the year – as we’re recording this, just off the highs. We are recording on 14 December and investor global markets are green, which is almost head-scratching in a sense.

NICK KUNZE: Yes, morning Simon. What a year it has been. A lot of us have been around for a while. You and I, especially when we look back, like where were you on September 11th, where you at the dotcom bubble? I think it’ll be one of those ones – where were you in the midst of March of 2020 when we had this massive pandemic sort of crash? 

But what a year, as you said. Year to date, the all-share, now up 4.08%, I make it. It’s a huge bounce back. The rand as well, Simon, the rand was at R19/dollar at its worst. Every single person sort of ran pessimist. Who would have thought it would be R14.88 a day or so ago? 

I think for me, though, people always wonder how, as I say,  these markets are always engineered to go up over time. Look no further than this morning’s sort of Bloomberg headline, quoting the markets up on ‘vaccine distribution optimism’. I think it’s just a reminder, if we look back on this year, that for long-term investors – and it’s such a cliché – if you pick quality stocks and you do your homework, ultimately over time a lot of these big sort of down moves, these one-off events like pandemics or, heaven forbid, terrorist incidences, often are a buying opportunity. 

And I think that’s something that I would look back on for this year. Like you, I never bought the absolute low on March 18 or 19, but certainly when things started to move on you figured out that it was an opportunity to get back into the marketplace.

SIMON BROWN: We are never going to get that low. And sometimes, if I think back to 2008, I think back to Nene in 2015, the recovery was a lot slower. So normally when are trying to pick those bottoms – and missing, but trying – it’s not perhaps comfortable for the next couple of months. In 2020 it got very comfortable very quickly, which was weird. But for a long-term investor, it was a great opportunity if we had the courage of our convictions.

NICK KUNZE:  Yes, it was. It’s almost like there are different stages of panics. If you look back over the last hundred-odd years and various incidents in the markets – not quite their markets, but certainly crashes of more than 10%  If you look back at these one-off events, like the financial crisis in 2008, it was very much a crisis in financial markets. It was the lending side, the banks, the subprime lending markets, you’d be able to sort of shift through the noise. And this particular one, as well, this was almost like, if you look at South Africa, a lot of these sectors were forced to shut down by the government because of the pandemic.

There weren’t incidences where you saw it coming. It was literally ‘close doors’. You were instructed to shut your shop, and that was it. At some point, you kind of had to realise it was going to open up. We didn’t know how bad the sort of damage was going to be, but it clearly was a one-off event and not something that was going to stay with us.

And, as we’re seeing markets opening up again and vaccines coming through, the value shares are starting to creep higher again, we realise that there is a bit of light at the end of the tunnel.

SIMON BROWN: Yeah. I take that point. There is some light in the tunnel. I want to come back to the light. You’ve been in the market for a long time, you’ve seen some crazy stuff. Isn’t this negative oil is the craziest thing we’ve ever seen?.

NICK KUNZE: Yes, I think so. I thought negative interest rates were just a one-off. Our members were trying to explain to a client that in Denmark you will get paid to take a mortgage. They couldn’t quite get their heads around on it. But I’m an options trader by nature so, with my background, I always try to explain to people what it means like to write a put. It’s quite a complicated thing. But negative oil? That’s a first.

By its bare nature, you are delivering contracts of oil on expiration. How can you pay someone to take that oil off you? It was absolute bliss. I think that ranks up as one of the more bizarre scenarios of this year.

SIMON BROWN: It was specific. It was West Texas, and it particularly cushioned, I think,  where they simply didn’t have the capacity. And it physically settled. There were barrels of oil coming in.

NICK KUNZE: That’s exactly right. It got to I think the Thursday or Friday for that contract that they needed to roll, and people didn’t roll it. And people forget that, when you trade commodities, if you don’t roll that contract or sell it, you’re basically going to take delivery. And, as you said, there just was not enough storage place at Oklahoma in their storage [facility] to take it. So I just wonder there were a couple of graduates with a few oil barrels, and day traders at Robin Hood with some oil on their driveway. But I think there were some fortunes made or lost in that particular way, definitely.

SIMON BROWN: And I once got delivered on maize. So I’ve got no space to talk – although at least that went to a silo and it didn’t go to my garden at The Point. 

You mentioned, “light at the end of the tunnel”. We’ve got the vaccines, we can see our way out of it. What’s on your radar for 2021, looking forward to next year?

NICK KUNZE: For us who manage money, and just traders as well – we’ve both got a trading background – I try and look for themes, I try to look for what is going to be the theme for the next 12, 18 months that you want to be on board, that theme. And you want your clients to be on board that theme. As you said, you might not necessarily be first, but you want to jump on board. 

And I think the theme for me playing out – and I think I’m probably along with many – is the weaker dollar.

I think the central banks are going to continue to print money. They’re doing whatever they can to keep this economy going.

I don’t know, but they’re going to continue that stimulus. And I think that dollar theme is going to certainly play through in the coming months. 

Off the back of that, I think it’s good for us. So I’m going to think commodities. I think we might see a little bit of inflation ticking up. Inflation has been nowhere for years, with people talking about deflation. But I think personally we will get a little bit of tick-up inflation. That’ll mean food prices and stuff like that and things. So I want to play that “things”, whether it’s, as you just talked about getting maize a little bit, I want to play that “things” with soft commodities, food inflation, that sort of play. And I think South Africa might be in a bit of a good space with regard to that.

SIMON BROWN: Yes, with the rand going stronger and, again, commodity prices higher, [to] benefit our rand/dollar.

NICK KUNZE: Yes. And still, add those things as well. There’s been a lot of talk about moving away from fossil fuels, and back in terms of energies and green space. You know, that theme has been played for a while, but I think it’s got further to play out. And what we’re certainly starting to discover now, and by our sort of homework as well, is that that green space requires a lot of rare earth, it requires a lot of that commodity space. So when you talk about lithium or even just hydrogen cells, which are supposedly a new, big thing for batteries, that requires three or four times more platinum in a hydrogen …… cell than a catalytic converter in a car. 

So, ironically, trying to keep the earth happy you’re going to need to dig mines deeper and deeper and look for more and more of that sort of stuff. So I think that we just might get the stars aligned for SA.

I’m coming with a little bit of a patriotic SA look – we might be okay going into next year.

SIMON BROWN: That ties in with my sense and that weaker dollar, I think there’s a lot that can go really well for our country next year. We’ll leave it there. Nick Kunze from Sanlam, I really appreciate your early mornings over the year. Hope you have a great holiday.

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