The interest rate cycle has entered an upward trajectory. Mohr notes that rising interest rates tend to curb house prices, and the property market is typically a buyers’ market.
“In such a market, a buyer should have a wider potential range of properties to choose from and more time to find a suitable property.
“Potential buyers must, however, make sure that they are able to afford the increasing mortgage payments as interest rates could rise more than generally expected,” he says.
The Chinese story
Just as the drought has hit the country hard, investors can expect a drought in the sense that the sources of returns have all but dried up, according to a recent investment update from the Old Mutual Investment Group. Old Mutual conservative fund manager John Orford says the ongoing transition in China from investment-led fast growth to slower consumption-led growth will have ongoing implications for investors well into next year.
“We remain cautious on the outlook for commodities and emerging markets as a result and, in our view, exposure to the Chinese consumer is preferable to commodity-linked exposure to China,” he says.
“For example, Naspers, via its holding in Tencent, offers investors exposure to the rapidly growing internet services in China and remains a core holding in our portfolios.”
With the rand in free fall, many investors are panicking and taking their money offshore. The key question is whether or not this is advisable.
Mohr says you should never make important investment decisions in “panic mode”.
“Having said that, international investments should be part of any investor’s portfolio, because such exposure reduces the overall risk of the investor’s portfolio and adds to the return potential.
“Investors should, however, guard against taking all their investments offshore after a massive rand depreciation. In the past, the rand has often improved a bit after a big fall.” However, Mohr cautions that when you take money offshore, it must be part of a long-term financial plan.
“Investors must also take into account that many South African equities, such as Naspers and SAB, also provide the investor with international assets or investments. You need to make sure that the international investments make investment sense.
“For example, when buying equities, the valuations must be attractive – in other words, not expensive. Currently, international cash interest rates are basically zero and so international cash is not looking attractive, while equities and property offer better value,” he says.
Is this the time to go into cash?
Mohr says regardless of what is happening in the markets, you should not shy away from financial markets.
“Over time, equity and property markets provide the best returns. However, investors must not try to ‘time the market’ – i.e. jump in and out in the short term.”
Mohr says many studies have shown how such timing decisions destroy longer-term returns.
“It makes sense to buy into a diversified or balanced fund that invests across a range of asset classes or investments, locally and internationally.
“Fund managers will be making the underlying investment decisions,” he says.
“Currently, cash returns are barely better than inflation and, in the longer term, are unlikely to do better than a diversified or balanced fund.”