Keep saving regardless
How do uncertain times affect retirement planning? asks Johann Barnard
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
Richard Carter … priced in already