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Welcome to Mind Matters week of 9 May 2022
Global economic news
Game of exchange rates, inflation and politics: Russia, China and America
Russia rescued the rouble — what does that say about the rand?
Most pundits considered the capitulation of Ukraine to be inevitable... And yet, Ukraine is resisting with enormous fortitude and skill. So chalk one up for the Ukrainian side — at least, so far.
But for supporters of Ukraine, there is an uncomfortable truth; Russian finances are holding and, with enormous skill and creativity, the Russians have dealt with what could easily have been a financial implosion. Or have they?
Ostensibly, the measure for these things is the exchange rate. As South Africans know all too well, the exchange rate embodies three things: trade, political confidence and economic robustness. The rouble had been trading between €85 and €95 for some time. At the start of the war, it suddenly leapt to €144, in what can only be described as a rand-like gyration.
Although the turn around of the rouble in the last two weeks is dramatic and due to the manipulation of interest rates, does it tell us everything about the economy and politics of the country? Will the rouble hold or is it a veneer. 4 min read.
Xi Jinping Scrambles as China’s Economy Stumbles
His recipe for stagnation: Hostility to the private sector, friendship with Russia, and ‘zero Covid.’
The economic problem rests with Mr. Xi and his pivot to the state. He unleashed the crackdown on the property and tech sectors. He described these decisions as part of an overall policy framework that has moved Chinese economic policy well to the ideological left. Mr. Xi has begun strangling the goose that, for 35 years, has laid the golden egg.
The big question is whether Mr. Xi has gotten China’s underlying policy direction badly wrong—and if so, if he is willing and able to change course. If not, the world may enter an even more dangerous phase if Mr. Xi turns to nationalism and greater foreign-policy assertion to reinforce his domestic political legitimacy in the face of a slowing Chinese economy.
A good piece of writing by Mr. Rudd.
Mr Rudd is global president of the Asia Society and author of “The Avoidable War: The Dangers of a Catastrophic Conflict between the U.S. and Xi Jinping’s China.” He served as Australia’s prime minister, 2007-10 and 2013. 4 minute read and you may need a subscription to Wall Street Journal via your university library.
To fight inflation, it is necessary to fight protectionism
Pinelopi Koujianou Goldberg, a former World Bank Group chief economist and editor-in-chief of the American Economic Review, is Professor of Economics at Yale University. Questions whether free trade has been allowed to flourish in America.
One of the most important benefits of free trade is that it exposes domestic firms (and labour markets) to greater competition, which induces them to keep prices low and to innovate constantly to stay ahead of the curve.
A three minute 30 second read.
Five things that economists know, but sound wrong to most other people
Economists have shaped the modern world in many ways. Governments make policy choices in response to the data that we produce about things like GDP and inflation. Social media companies use our insights about human behaviour to create features that encourage people to use their platforms. And we’re at the heart of everything from incentivising renewables developers to build more wind farms to regulating the behaviour of tech giants like Google or Facebook.
Yet this is only one side of the story. A curious thing about our profession is that when we academic economists largely agree with each other on something important, the rest of the world often completely ignores our conclusions. Are these findings too counter-intuitive, too impractical, or something else? Here are five examples so that you can decide for yourself:
Read the article in the .pdf below. These are interesting examples. What principles can you learn from them? Maybe you disagree with them. 5 min read
Local (positive) economic news
South Africa sports a stand-out positive trade balance in the emerging market universe
South Africa’s external trade situation is among the strongest in the emerging market universe, with its positive export positioning ahead of any of the other emerging markets. Commodities will determine whether and for how long this continues. But as long as commodity prices remain elevated, the country’s low external risk status stands in our favour.
A positive note against the bleak background of rebuilding flood ravaged, riot ravaged KZN. 3 min 30 sec read
Financial news
MPs ask Treasury for report on impact of new financial sector levies
Parliament’s Standing Committee on Finance has tasked National Treasury with producing a report on how the Financial Sector and Deposit Insurance Levies Bill will impact consumers and small entities.
To be read to gain more understanding of regulation and regulatory bodies in the financial sector. The Twin Peaks Model is referred to in the article which the infographic below may help to establish context. 5 min read
The Twin Peaks model for financial sector regulation was proposed as a means to reform the regulatory and supervisory system for financial institutions and market infrastructures.
Banking Ombudsman sees rocketing internet-related complaints
The Ombudsman for Banking Services (OBS) says it saw a massive increase in the number of complaints made by consumers against their banks in 2021, with tech glitches and fraud complaints topping the list.
In a media statement, the OBS says, over the past two years, the COVID-19 pandemic has disrupted the traditional banking model, testing it to its limit – resulting in banks battling to adequately address consumer demands.
A 3min 20 sec read.
Investments latest thoughts
Offshore versus local investment – it’s not so clear-cut any more
Earlier this year, National Treasury relaxed foreign exchange controls, allowing retirement funds to invest up to 45% of their assets offshore. The optimal global exposure for a standard Regulation 28-compliant balanced fund is closer to 35%, according to analysts at Cape Town asset manager Old Mutual Investment Group (OMIG), who warn that you should exercise caution when making the decision to invest offshore.
Exercising caution, does that mean you should not invest? Rather there are principles to follow. 3 min read
Developments in UK crypto space could provide clues into SA regulation plans
Compli-Serve SA's Richard Rattue looks at how crypto regulation might evolve in South Africa based on lessons from the UK.
South Africa’s financial services industry is awaiting the release of cryptocurrency guidelines and regulations from the Financial Services Conduct Authority (FSCA).
Meanwhile, the UK authorities are a little further down the line to regulating cryptoassets. They have announced intentions to ‘widen the scope of the financial promotions regime in so far as it applies to cryptoassets’. This includes the Financial Conduct Authority (FCA) publishing a consultation paper to enhance the rules for promoting high-risk investments.
Could these developments indicate what the FSCA may determine for the local cryptoasset space?
This article is from Feb 2022, but what would be good is to read it first and then listen to the interview below. This article is a three min read.
PODCAST
Why advisers should care about decentralised finance
LISTEN: Decentralised finance experts Lavinia Osbourne and Caroline Hughes tell reporter Chloé Meley exactly what DeFi is and what advisers should know about this fast-evolving sector.
LONDON: Last month’s Citywire South West retreat in the UK included a panel discussion on decentralised finance (DeFi), which prompted a wide range of reactions from the audience. Whether advisers are crypto-sceptics or crypto-curious, discussions around DeFi are as relevant as ever to them.
A 31 minute podcast if you're rewarding yourself with a meaningful break from your books and you're interested in DeFi and crypto.
The pitfalls of using rules of thumb when planning for retirement
Each day, we are confronted with problems to solve and faced with hundreds of decisions that need to be made – some that can be taken on the fly and others that require more careful consideration. Rules of thumb, or heuristics, as behavioural scientists refer to them, are useful mental shortcuts that simplify complicated matters and reduce the amount of time it takes us to make decisions.
In the context of investing, rules of thumb can help guide the way we think about and approach important life considerations, such as setting financial goals and planning for a comfortable retirement. However, as we illustrate with a few examples below, rules of thumb should not be considered hard and fast instructions, but rather broad and general guidelines.
An accessible read with good examples. 4 min.
Sticking with health, basic to surviving, central to thriving
SA has a critical shortage of qualified nurses, the backbone of healthcare
As we honour nurses on International Nurses Day, 12 May (the anniversary of Florence Nightingale’s birth), we are again confronted with the myriad challenges the pandemic has laid bare over the past two years — particularly the critical shortage of nurses in South Africa, on the continent and globally.
Such a sad reality, but also an opportunity to agitate for change to fill the shortage. 4 min read
The NHI will not succeed unless its benefits package is accepted across the broad spectrum of society
The parliamentary committee on health recently concluded public hearings on the National Health Insurance (NHI) Bill. This article looks at what the committee was asked to consider about medical benefits and the NHI.
5 minute read, sixth article in the series on the NHI.
South Africa’s looming public health crisis highlighted by a Karoo community with the highest rates of Non-Communicable Diseases in the country
The number of South Africans suffering from diabetes increased by 257% in the decade to 2019, while cancer and cardiovascular illnesses are responsible for 55% of claims against critical illness policies.
According to healthcare actuary Shivani Ranchod of Percept, a health and financial services advisory firm, South Africa is facing an unprecedented public health emergency driven by a growing prevalence of Non-Communicable Diseases (NCDs) like diabetes, cardiovascular disease, cancer, asthma and mental health conditions.
Ranchod points out that there is very little reliable data or research on the prevalence of NCDs in South Africa, because the conditions are not notifiable and also because the focus has been on HIV. “Not having credible insights into the state of the health of your population hinders your ability to plan. Equally, it also prevents life insurers from deriving accurate pricing for risk products. This research is the first step towards building a comprehensive dataset that paints the picture for the entire country.”
“The series of briefs provides a deep dive into some of the key NCD conditions and analyses South Africa’s incidence and prevalence and what that means for the type of healthcare required in future,” concludes Ranchod.
Very worthwhile read with link to the 14 briefs that form the content of the full research undertaken. This article is a six minute read.
How and why the science behind Vitality is changing lives and keeping people healthier
When I look at the impact that Vitality has had on society in its 25 years of existence, it is astounding. From a global fight against the COVID-19 pandemic and our ongoing efforts to tackle non-communicable diseases, to creating financial wellbeing and making our roads safer, Vitality is life-changing for those who engage with it.
A plug for Discovery, but also for behavioural science. 3 min 30 sec read.
Industry news keeping you in the know
Insurers need to find new customers in tough environment, says PwC
FOR insurers to sustain profitable growth, they needed to find new customers and address unmet, new and evolving needs, while retaining ample margin, says PwC Actuarial, Risk and Quants partner Renasha Govender.
Under the theme ‘Sustaining Impact: Reflecting on past resilience and future challenges of life insurers in South Africa’, PwC South Africa’s analysis of major life insurers found that the local insurance industry was able to meet its escalating obligations to policyholders, and maintain required capital and liquidity positions, while dealing with business interruption.
Good overview of the growth of certain sectors within the industry. A necessary overview of how things stand. 5 min read
Digitisation is driving the evolution of new trends that are reshaping the insurance landscape
While the road to digitisation is imminent, it is equally important that the industry should have the fundamentals in place.
So, how is digitisation changing the face of the insurance industry? How is this beneficial to the consumers? What are the new trends that are emerging? What does digitisation bode for the future of intermediaries and what are the barriers that need to be overcome to ensure that the inherent benefits that are being brought about by this new era are fully realised?
A growing trend in financial services is cross-industry collaboration and partnerships between different stakeholders within the sector.
Another bigger picture article, but let it wash over you as you begin to recognise the positive spin offs and the potentially negative ones depending on how an insurer responds to the trends. 3 min 30 sec read.
Big increase in fraudulent and dishonest risk cover claims in 2021
Life insurers detected 4 287 fraudulent and dishonest claims worth R787.6 million across all lines of risk business in 2021. This is a 34.5% increase in the number of such claims from 2020, when 3 186 cases of fraudulent and dishonest claims to a value of R587.3m (34.1% increase) were uncovered.
What a wake up call! The reality is that premiums go up when people are dishonest. 5 min read
About you
Study tip for the upcoming exams: get out of your comfort zone!
“In preparing for battle I have always found that plans are useless, but planning is indispensable.” -Dwight D. Eisenhower
While combing the internet for resources on studying actuarial science, I came across rethinkstudy.com. I believe you will find it user friendly and informative. The site is geared towards the American actuarial exams, which are multiple choice up to a certain level, but the type of content remains the same as ours so the advice is as pertinent for us in RSA as for those in the USA. The site was started off by Roy Ju and Mike Jennings. Their aim is to help you qualify and still have a life! I like their attitude and their advice is appropriate.
In an article written by Mike and Roy called Changing your Study Habits- study audits and another called How your study environment affects exam performance we can see that the material posted on 28 August 2017 on Learning effectively, is in alignment with their messages. These articles may be five years old, but there messages are relevant for now!
Read the articles and also visit the tab "Actuarial study techniques" on this site by clicking here.
This week I want you to think about the upcoming exams and your response to learning. Both James Clear and Shane Parrish have crafted or curated some wisdom to assist us simplify the dare I say "overwhelming task" of studying. We perceive it as complex and overwhelming and yet if we applied a little of the wisdom in the thoughts below - we'd be able to see things with a fresh perspective.
Before you ask, "What should I do today?"
Ask yourself, "What should I remove today?"
Create the space you need to succeed. James Clear
Don't you love that? Create the space you need to succeed. Let's stick with James ...
I.
"In the long-run, prioritization beats efficiency."
II.
"When researching strategies, emphasize patterns over stories. One person succeeding means nothing. 100 people succeeding is a signal.
When explaining strategies, emphasize stories over patterns. People forget numbers and charts. Everyone remembers a great story."
III.
"When determining the size or complexity of a new habit ask yourself, "What can I stick to—even on my worst day?"
Start there. Master the art of showing up. Then advance.
FS
“The simplest way to achieve simplicity is through thoughtful reduction. When in doubt, just remove. But be careful of what you remove. … When it is possible to reduce a system’s functionality without significant penalty, true simplification is realized.”