Knowledge Of The Art Ltd

We are now living in a world of low interest rate. The bank rate, which is a weighted average of the offered rate on Treasury short term bills, medium term note and long term bonds in Mauritius, is actually at 2.48% at end of June 2015 (Bank of Mauritius: 27th Jun 2015). Some commercial banks have in the past few months decreased their Savings Rate (SR) and their Prime Lending Rate (PLR), notwithstanding the status quo in the repo rate, which has remained at 4.65% since the last change of 25 basis points (0.25%) reduction in June 2013. In May 2015, MCB decided to decrease its SR by 0.15% to 3.00% and its PLR by 0.10% to 6.90%, and for corporates, including “associations”, “sociétés”, “syndicats” and “organisations non-gouvernementales”, the new SR of 3.00% will be applicable for all balance of up to Rs. 5 million, and will only generate 1.00% for any amount above the initial Rs. 5 million. SBI Mauritius announced exactly the same decrease rate, 0.25% on SR and 0.10% on PLR, with the exception of that there is 0.00% interest for corporate savings account. At Knowledge of the ART, we believe that this low interest scenario will persist in the medium term, i.e. next 5 years. For your reference, with a compound rate of return of 3.00% on a deposit, it will take you 23.5 years to double your money. At a rate of 5.00%, it will take you 14.25 years to double your money.

In Mauritius, in between the traditional savers who only swear by savings account and fixed deposits and the extremist ponziers who have tried to touch gold without any mining, exists a series of investment possibilities, in the name of mutual funds and collective investment schemes (CIS), available in the hands of the public since the early 1990s, with the enactment of the now repealed Unit Trust Act 1989. Little by little, these investment solutions have made their way into the managed and unmanaged portfolios of the more informed segment of the Mauritian population.

Banks have been, one after the other, starting to offer Investment products, ranging from easy-to-understand mutual funds, passing through more complicated structures like ETF (Exchange Traded Funds) to 2nd generation investment funds in the areas of commodities like oil and gold, private equities and alternative investments. SBM has been offering over the recent years funds like SBM INDIA FUND, USD SECURED ETF, BRICT (Brasil, Russia, India, China and Turkey), whilst MCB has been doing same with its various funds, ranging from its TARGET DATE FUNDS to CRESCENDO, NIFTY INDIA FUND, MEGATRENDS and also the MCB AFRICA BOND FUND, for which MCB Investment Management has received the title of Best Investment Management Company from the World Finance publications in 2015. AFRASIA has been, amongst other funds, with its partners, proposing its ACM INDIA FOCUS FUND and also the AFRASIA SPECIAL OPPORTUNITES FUND. Afrasia has been named by Euromoney “Best Private Bank for Investment Banking Capabilities” in 2015. ABC BANKING CORP tried its hands with PRIME EBONY FUND, and BANK ONE offers funds under its “Authorised Sales Agent” agreement with iPro and Merrill Lynch.

A survey that hit my desk today, 01st July 2015, from Bloomberg, classifies the expected growth of 47 surveyed countries, based on the latest available figures, for the year 2015. According to Bloomberg’s Economists, the worst 5 performers will be Ukraine (-4.00%), Russia (-3.50%), Brazil (-1.60%), Argentina (-1.50%), Switzerland (+0.10%), and the top 5 will be Indonesia (+5.44%), Philippines (+5.70%), Vietnam (6.10%), China (+6.90%) and India (7.50%). It is good to see that the market of the top performer of this survey is actually accessible via some of the above-mentioned funds. But, so are Brazil and Russia, which are represented in the BRICT fund. This is given for your reference only. Please note that investing should not be done in a vacuum. It is not about looking at some funds, and considering some surveys, and picking and choosing a fund. You should seek professional advice from registered providers, if you are not accustomed.

As we used to say in our “Banking” and “Financial” classes at Knowledge of the ART, investing in funds and CIS for Mauritians should become, at term, as normal as opening a Savings Account. And, for Mauritians to move away from 100% traditional savings and investing, and stay away from dubious and opaque quasi-ponzi offers, we need to:

• further sensibilise the target market with regard to the assessment of their unique financial circumstances and needs.
• review the definition of risk and ban the words “zero-risk” and “risk-free” from our financial dictionaries.
• develop standards for island-wide consistent reporting of funds’ performance and/or adopt the Global Investment Performance Standard (GIPS).
• use funds and collective schemes as a means to get to equity investing and from there, bring more liquidity in our market for the benefit of all participants, whilst urging the new traditional investors to consider that funds and CIS are a lighter and more diversified version of investment, to which they may adopt and get accustomed to or which they may use as a conduit to rope into more sophisticated and potentially more rewarding opportunities over time.
• make sure that the front liners, who are marketing, selling, servicing these products and answering phone calls have intrinsic knowledge and that they can effectively guide the investor through. 

We have to continuously enlighten investors, actual and potential, about the risk involved in any kind of investment. The issue is that many Mauritians got to open their first-ever Central Depository and Settlement (CDS) accounts to start investing on the Stock Exchange of Mauritius in the past 2 years. This was actually doing justice to the movement of trying to double the number of Mauritian Investors on the exchanges to 100,000. However, for many of those novices, the few securities that they ended up holding in their portfolios were Lottotech, which is 48% off the initial price paid at date, closing at 5.20 on 01st July 2015 and Le Merritt, which is non recoverable. And for those neophytes, it might just be an irreversible “KOSTÉ LOIN AR ZOT”.


The Bloomberg survey is available on http://www.bloomberg.com/news/articles/2015-07-01/these-10-economies-will-be-the-world-s-worst-performers-by-the-end-of-2015?cmpid=BBD070115_BIZ