Keep sav­ing re­gard­less

How do un­cer­tain times af­fect re­tire­ment plan­ning? asks Jo­hann Barnard

Financial Mail - Investors Monthly - - Feature: Retirement -

f in­vestors have learnt noth­ing else in the past 12 months, they have seen that any rea­son­able ex­pec­ta­tion of fu­ture cer­tainty has been all but oblit­er­ated, given events lo­cally and abroad.

Po­lit­i­cal tur­moil and machi­na­tions within our bor­ders have pushed the cur­rency to record lows, only for it to bounce back in re­sponse to the year’s first act of mass folly — the UK’s vote to leave the EU.

Then, a few short weeks ago, US vot­ers dis­played the depth their fear and in­tol­er­ance by elect­ing Don­ald Trump to the White House.

Only his­tory will tell us the ex­tent of the ef­fect of these re­cent events. In the short term it cer­tainly ap­pears as if our fu­tures, and our ex­pec­ta­tion of the way the world works, have been re­shaped.

It is in the midst of all these de­vel­op­ments that SA in­vestors have to weigh up the ro­bust­ness of their re­tire­ment sav­ings plans.

Any in­vest­ment an­a­lyst, fund man­ager or fi­nan­cial ad­vi­sor would nat­u­rally point in­vestors to the long-term na­ture of such plan­ning and say that short-term events should not be al­lowed to de­tract from or de­rail a well-thought-out strat­egy.

But events at home have done lit­tle to pro­vide com­fort to the rat­ings agen­cies. SA missed a down­grade mid-year, and the De­cem­ber de­ci­sion is heav­ily re­liant on govern­ment meet­ing com­mit­ments on the sovereignty of the coun­try’s in­sti­tu­tions. The axe of a pos­si­ble down­grade has been hang­ing over our heads for close on a year.

IViews dif­fer widely on whether it will hap­pen. Leon Cam­pher, CEO of the As­so­ci­a­tion for Sav­ings and In­vest­ment SA, says: “This is about as dif­fi­cult as pre­dict­ing the cur­rency, but I would sus­pect that we will get a stay of ex­e­cu­tion and [the rat­ings agen­cies] will prob­a­bly have a look at it in the mid­dle of next year,” he says.

His faith in this out­come is based on the work done over the 10 months by the pri­vate sec­tor, in tan­dem with the likes of the SA Re­serve Bank and na­tional trea­sury, to re­as­sure global in­vestors and rat­ings agen­cies.

Cam­pher says: “In 2008, when the fi­nan­cial cri­sis hap­pened, the all share in­dex was at 36,000. It bot­tomed at 16,000 and six years later it’s at 54,000. So if you’re truly a long-term in­vestor and sav­ing for re­tire­ment you don’t re­spond with a knee-jerk re­ac­tion to shocks in the mar­ket that will hap­pen from time to time.

“In spite of the un­cer­tainty, we’re still see­ing net in­flows into sav­ings prod­ucts. Over the past quar­ter we’ve seen some­thing like R60bn flow into the unit trust in­dus­try, which has now grown to a to­tal of R2-tril­lion,” he says.

Other mar­ket com­men­ta­tors and par­tic­i­pants share some of Cam­pher’s op­ti­mism, even if only to re­in­force the mes­sage that there is no need to panic.

Mark Lind­hiem, In­vest­ment Solutions’ chief in­vest­ment of­fi­cer, agrees that the work done to pla­cate global play­ers on the ro­bust­ness of in­sti­tu­tions has had a pos­i­tive in­flu­ence in di­min­ish­ing the chances of a down­grade.

“An im­por­tant point is that if we were down­graded it doesn’t nec­es­sar­ily mean that the in­ter­na­tional in­vestors and in­dices would sell out of SA,” Lind­hiem says. “We would need to be down­graded another two or three notches be­fore that would hap­pen. A down­grade by one notch, should that hap­pen, is ob­vi­ously not a pos­i­tive devel­op­ment but I think some of that has been priced into the mar­ket and we wouldn’t nec­es­sar­ily see a big sell-off.”

This view on the mar­ket al­ready pric­ing in a down­grade is im­por­tant in that markets could re­act pos­i­tively should it not hap­pen. But the ex­act same could hap­pen if the down­grade were to be af­firmed.

Richard Carter, head of prod­uct devel­op­ment at Allan Gray, is one of those who believe the mar­ket has al­ready priced in the bad news. “This is con­sis­tent with what we’ve wit­nessed in other coun­tries: in the pe­riod up to a down­grade both the cur­rency and their markets take a beat­ing,” he says. “And when the down­grade is fi­nally out of the way, in many cases it’s al­most as if there’s a sigh of re­lief and things start to im­prove.”

The dan­ger for SA in­vestors is the re­sponse to the down­grade by govern­ment. Should Pravin Gord­han — if he is still around as fi­nance min­is­ter — take fur­ther steps to ad­dress con­cerns from rat­ings agen­cies we could find our­selves in a stronger po­si­tion in a short time.

The big dan­ger, Cam­pher cau­tions, is a sit­u­a­tion in which the coun­try ex­pe­ri­ences a spi­ral of down­grades that could take

Picture: iSTOCK

Richard Carter … priced in al­ready

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