MAR­KET JITTERS

Ride out the tur­bu­lence

Financial Mail - Investors Monthly - - Contents -

It’s easy to fo­cus on the money man­agers tasked with in­vest­ing their clients’ money wisely, writes

Jo­hann Barnard. But what is the sen­ti­ment out in the wild, where in­vestors are tak­ing hits from ev­ery an­gle? Who bet­ter to ask than the as­set man­agers deal­ing with queries of an in­creas­ingly fear­ful na­ture.

It’s im­por­tant to em­pha­sise the use of “fear­ful” rather than “pan­icked”. Panic would be South Africans flog­ging cash and as­sets to re­duce their lo­cal ex­po­sure, as they did af­ter then fi­nance min­is­ter Nh­lanhla Nene was fired in De­cem­ber 2015.

Those who pan­icked and moved as­sets off­shore at the point the rand was at its weak­est would right­fully feel a lit­tle sheep­ish today.

“Peo­ple who went off­shore af­ter Nene was fired saw the rand per­form very strongly and lost money on their in­vest­ments,” says Izak Oden­daal, in­vest­ment strate­gist at Old Mu­tual Multi-Man­agers.

Though the rand lost some ground af­ter Pravin Gord­han’s ax­ing, it has not been as pro­nounced, and in­vestors ap­pear to have been less spooked.

In fact, Oden­daal says the si­lence from clients has been deaf­en­ing. “There’s al­most a sense South Africans are numbed by po­lit­i­cal un­cer­tainty. There have been so many in­stances when Gord­han was about to be fired, it’s al­most like the boy-cried-wolf sce­nario that has made us ac­cus­tomed to po­lit­i­cal un­cer­tainty.”

A scarier prospect than the numb­ing of senses is al­low­ing an air of res­ig­na­tion to set in.

36One As­set Man­age­ment co-founder Cy Ja­cobs al­ludes to this when he says in­vestor ap­petite is muted, but may im­prove “once peo­ple feel okay with the new norm”.

The abil­ity to adapt re­flects re­silience, which lo­cal in­vestors have had to have by the bucket load. But even these re­serves may have their lim­its.

RMI In­vest­ment Man­agers CEO Chris Meyer says in­vestors’ in­ter­est in en­ter­ing the mar­ket is “sub­dued and con­fused”.

“Even pro­fes­sional in­vestors don’t know how to man­age money in this kind of mar­ket . . . It’s dif­fi­cult to make big de­ci­sions in this en­vi­ron­ment.

“Over the long term, it has gen­er­ally been a good idea to buy in the dips in eq­uity mar­kets. The ques­tion we’re ask­ing right now is whether this dip in eq­uity mar­kets is enough or [whether it] is a small first sign of some­thing more sin­is­ter that could still come.”

There doesn’t seem to have been whole­sale panic in the mar­kets af­ter Ja­cob Zuma’s cab­i­net reshuf­fle. This could be due to the numb­ing of senses, or be­cause as­set man­agers are get­ting through to their clients.

“In­vestors are jit­tery, and it’s re­ally a ques­tion of ‘we’ve been through this be­fore, don’t panic’. There’s a lot of noise in the sys­tem,” says Mark Ap­ple­ton, head of SA strat­egy and mul­ti­as­set man­age­ment at Ash­bur­ton In­vest­ments. “We’ve been com­mu­ni­cat­ing with [in­vestors] and em­pha­sis­ing that it’s im­por­tant to have a port­fo­lio that is well di­ver­si­fied.”

Com­mu­ni­ca­tion is cru­cial to calm­ing nerves and pre­vent­ing in­vestors from mak­ing il­lad­vised moves.

PSG As­set Man­age­ment CEO Anet Ah­ern says the dan­ger lies in tak­ing a bi­nary de­ci­sion that re­moves all money from the mar­ket.

“It’s like try­ing to pin­point a spot in the ocean when it’s stormy. You’re sur­rounded by noise and volatil­ity, and you’re tak­ing a de­ci­sion based on one data point,” she says.

“To re­act emo­tion­ally at the time of panic is sel­dom re­warded in the long run. Some­times peo­ple panic on the first day af­ter an event and they are right for a lit­tle while and they feel good. Then the mar­ket nor­malises . . . and re­turns to where they sold out.

“It’s dif­fi­cult to get back in if you take all the money off the ta­ble. It’s bet­ter to tweak around the edges.”

Meyer’s ref­er­ence to “sub­dued and con­fused” in­vestors ap­pears in­creas­ingly apt. And who could blame them (us) for feel­ing like a deer in head­lights.

Of­fer­ing some so­lace, Old Mu­tual’s Oden­daal says the less­ened im­pact of the cab­i­net reshuf­fle is also due to gen­er­ally more pos­i­tive con­di­tions.

“The global en­vi­ron­ment is far more favourable to SA than 18 months ago,” he says. “[The firing of Nene took place] at the height of out­flows from emerg­ing mar­kets, the bot­tom of the com­mod­ity cy­cle and as the US Fed was get­ting ready to hike in­ter­est rates for the first time in a decade.”

Among the pos­i­tives, he sees a re­turn­ing in­ter­est in emerg­ing mar­kets as sources of growth. He also says the down­grade will have averted ag­gres­sive in­ter­est-rate hikes. And the re­cov­ery in com­mod­ity prices since last year places us on more solid ground.

There is lit­tle to in­spire con­fi­dence for the av­er­age in­vestor. Those with a more ag­gres­sive bent may be look­ing to ex­ploit op­por­tu­ni­ties in lower prices for good-qual­ity as­sets or bet­ting against the rand.

The chal­lenge for in­vestors is not the range of choice, but mak­ing the right choice with cer­tainty. And with so much of po­lit­i­cal, fi­nan­cial and ev­ery­day life in flux, it’s dif­fi­cult to say with con­fi­dence from one week to the next whether a de­ci­sion is cor­rect.

Cy Ja­cobs … in­vestor ap­petite is muted

Izak Oden­daal … it’s not all bad news

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