A month-and-a-half since SA implemented the new two-pot retirement savings system, we have some outflow data on what South Africans are spending withdrawals on.

And that, combined with other recent general SA optimism signals could make for interesting investment opportunities.

Here’s what you need to know…

Shining some light on 🔦 

• Two-pot in play: More SA optimism on the cards.

• SA-Saudi deal, bonds, private markets & energy on the rise.

• Stock update: Higgo’s Top 11 stock picks for 2024.

• Earnings calendar: Who’s reporting on revenue, when.

• Should you invest in a retirement annuity or go off-shore?

THE SPOTLIGHT

Leveraging SA’s Two-Pot Savings Windfall

We haven’t spoken about it yet, but SA’s new two-pot retirement system, which was enacted a month-and-a-half ago on 1 September 2024, is already injecting more cash into the market.

1.2 Million South Africans have processed R21 billion worth of withdrawals to date to fund, amongst others:

How the Two-Pot System Works: A Game Changer

Previously, all retirement contributions were inaccessible unless you retired or resigned from your work, in which 100% of the savings became available – which led to some bad decisions of people caching out all their retirements early.

The two-pot system counters that by making one-third of contributions available to withdraw from a savings pot while preserving two-thirds of contributions in a retirement pot, ensuring long-term financial security for retirement.

This split allows South Africans to tap into their savings without fully depleting their retirement funds.

Yet, as we’ve seen, access to savings generates significant financial injections into the marketplace. So who stands to benefit?

Industries to Watch

The retail sector is one of the primary beneficiaries of the two-pot system's R21 billion injection into the economy. As consumers tap into their savings to cover immediate expenses like home and car repairs, as well as day-to-day needs, large retailers are well-positioned to capture a share of this spending.

Take Shoprite Holdings, for example. The Group has seen market share gains for five consecutive years, with sales rising 12% to R240.7 billion in 2024, far outpacing the rest of the market thanks to strong performances in their SA supermarkets (contributing 81% of Group sales) and 58.1% growth in online sales via the Checkers Sixty60 platform.

It’s a bit expensive, though, so we wouldn’t discount Woolworths, which is more attractively priced and known for delivering good dividend yield.

And don’t forget the JSE Financial 15 – a large portion of two-pot withdrawals is going to finance and repay debts, so the banks are seeing some action too.

General SA Optimism

As we highlighted in recent weeks:

• The stronger Rand means importers are doing well, specifically pharmaceuticals like Adcock Ingram and tech hardware importer Mustek (who some say could see its pre-tax profits quadruple this year alone).

• And falling interest rates and fuel prices are helping inject more liquidity into the market.

It’s not all smooth sailing, though, as Eskom is trying to get a 36% energy price hike approved, but still a general air of optimism for SA Inc. 

Note: This is not financial advice, merely observations. For personalised financial advice, you can book to speak to a financial advisor here (powered by a registered FSP: No. 51310).

STOCKS AND ALL

💼 Saudi-SA Trade Deal: Saudi Exim Bank signed a $25 million credit agreement with Standard Bank to boost Saudi exports to South Africa. This deal strengthens trade ties as South Africa’s exports to Saudi Arabia grew 23% in 2023.

📦 Mondi’s Polish Investment: Mondi completed a €95 million upgrade at its Świecie containerboard mill, increasing kraft liner capacity by 55,000 tonnes. The investment enhances product quality, improves environmental performance, and meets rising demand for heavy-duty packaging.

📈 New Sibanye Interest: Sanctuary Advisors LLC acquired 208,028 shares of Sibanye Stillwater (NYSE: SBSW) in Q2, valued at $905,000. Despite recent analyst downgrades and a price target reduction to $5.17, institutional interest in the company remains high, with 34.93% of shares owned by institutional investors.

📊 BlackRock Eyes Bonds & Private Markets: BlackRock's earnings report shows $47.8 billion flowing into bonds as investors move away from equities while a survey reveals 91% of insurers plan to boost private market investments, especially in clean energy.

⚡️ NextEra Energy on the Rise: NextEra Energy Inc. saw its stock rally 1.28%, marking five consecutive days of gains. Meanwhile, Sanctuary Advisors LLC acquired 22,103 shares of NextEra Energy Partners, valued at $639,000, as interest in solar energy and clean

WEALTH HACKER’S KIT

Should You Still Invest in Retirement Annuities?

Retirement annuities (RAs) have long been a go-to for South Africans saving for retirement. 

But with the two-pot system, increasing offshore investment options, and concerns about government regulations, it’s worth asking: Is a retirement annuity still the best option for you?

Here’s what you need to know to make an informed decision:

Retirement Annuities: The Basics

RAs are tax-efficient vehicles that allow you to contribute up to 27.5% of your gross income (up to R350,000 per year) and claim it as a deduction. They also offer tax-free growth, making them an appealing choice for many.

However, your money is locked until age 55, and even then, you can only take one-third as a lump sum. The rest must be invested in an annuity for income.

Are RAs Still Worth It?

1. Tax Benefits

The biggest draw of RAs is the tax rebate. If you’re in a high-income bracket, this can lead to significant savings over time, which can be reinvested to grow your wealth. Just remember, if you don’t reinvest your tax rebate, your overall portfolio value could take a hit.

2. Limited Flexibility

Your RA investments are subject to Regulation 28, which limits your offshore exposure to 45%. For those seeking more international diversification, this can feel restrictive. If you’re looking for maximum flexibility, offshore investments might be a better alternative.

Offshore Investments: A Compelling Alternative

Over the past decade, offshore investments, such as the MSCI World Index, have outperformed the average retirement annuity fund by a staggering 22%. While past performance doesn’t guarantee future returns, the global exposure offered by offshore investments is hard to ignore.

However, offshore investments come with no tax breaks, and any growth will be taxed. It’s also worth noting that currency fluctuations can impact your returns.

THE PEOPLE HAVE SPOKEN

As fuel prices drop, where will you allocate your savings? 

🟨🟨⬜️⬜️⬜️⬜️ 🏠 Home and living expenses (26%)

🟩🟩🟩🟩🟩🟩 🛒 More savings and investments (60%)

⬜️⬜️⬜️⬜️⬜️⬜️ 📈 Expanding my business (0)

⬜️⬜️⬜️⬜️⬜️⬜️ 🎉 Leisure and travel (7%)

⬜️⬜️⬜️⬜️⬜️⬜️ 💻 Upskilling or education (7%)

⬜️⬜️⬜️⬜️⬜️⬜️ 👨‍👩‍👧 Supporting family or dependents (0)

Definitely, it’s a good time to make your own strategic plays, Shaun! 🎯