Budget speech commentary

The confirmation by the National Treasury of the introduction of tax-preferred savings and investment accounts by April 2015 is encouraging. Under current market conditions, it is extremely difficult on an after-tax basis to find conservative short-term investments that will beat inflation.

By Hugo Malherbe and David Crosoer

5 Mar 2013

With domestic growth under pressure and the South African Reserve Bank reluctant to hike interest rates, the low interest rates currently prevailing are likely to remain for some time yet.

More conservative investors with shorter investment horizons may need to consider holding longer-dated paper or employing broader investment mandates to keep pace with inflation. The proposed tax-preferred savings vehicle, which encourages long-term savings through a lifetime limit cap of R500 000, will allow an annual investment of up to R30 000, which would be free of tax on interest, dividends or capital gains. This will also assist in boosting the level of real returns an investor is able to generate.

Economic expansion appears favourable

With GDP growth of 2.5% recorded in 2012, 2.7% forecast for 2013 and growth of 3.8% expected by 2015, economic expansion in South Africa - as well as in other emerging markets such as China and India - appears favourable when compared to the troubled outlook for many of the advanced economies. However, Finance Minister Pravin Gordhan reminded investors that the global economic environment remains troubled and will take a number of years to recover.

In such an environment it is important that investors have realistic expectations of the kind of returns that the asset classes they have chosen to invest in can generate, given how they are currently priced. It is also imperative to invest with quality managers who can strike the appropriate balance between protecting capital and taking advantage of opportunities when they materialise.