Re­sist the flight to cash

That’s the global mes­sage from a bank at the fore­front

Finweek English Edition - - Creating Wealth -

NER­VOUS IN­VESTORS need to try and keep calm, take a long view and – if nec­es­sary – re­bal­ance port­fo­lios. There’s lit­tle point in sell­ing eq­ui­ties now and mov­ing into cash. Un­for­tu­nately, some in­vestors are do­ing this and it’s hap­pen­ing world­wide.

Some pri­vate client man­agers in South Africa say de­spite their best ad­vice wealthy in­di­vid­u­als are in some cases in­sist­ing on liq­ui­dat­ing share port­fo­lios. Of­ten those port­fo­lios are worth 30% less than at the beginning of the year, so sell­ing makes a pa­per loss be­come a real loss. But many in­vestors have never been through a mar­ket like this be­fore, so the flight to cash looks com­pelling.

“It’s a global phe­nom­e­non. What pri­vate client man­agers are deal­ing with here is the same as ev­ery­where else. Most pri­vate clients are hurt­ing to some ex­tent,” says Gor­don Rodgers, MD of Citi Pri­vate Bank for sub-Sa­ha­ran Africa.

Rodgers was in the coun­try last week vis­it­ing Citi Pri­vate Bank’s small base of wealthy clients in SA. Pri­vate clients are his busi­ness. How­ever, the hold­ing com­pany – Cit­i­group – has been at the fore­front of the global credit crunch (and is so far sur­viv­ing).

The cri­sis has taken its toll on Citi- group’s share price in the United States, slash­ing it back to Nineties lev­els. Once Cit­i­group was re­garded as the world’s largest bank mea­sured by mar­ket cap­i­tal­i­sa­tion. No longer.

“As one of the ma­jor banks in the US, ob­vi­ously we’ve been hit – it couldn’t be avoided,” Rodgers says. “One of the things we did right was to build up our bal­ance sheet. From a cap­i­tal point of view we’re well funded. But there have been job losses – all the US banks are cut­ting back.”

What’s he telling pri­vate clients to do? “We’re say­ing: lets re-as­sess. Com­mu­ni­ca­tion with clients is the key. Go back and con­sider what were the orig­i­nal in­vest­ment ob­jec­tives. Is the core port­fo­lio still in­tact?”

Rodgers says if any clients can be con­sid­ered “happy” it’s those who have re­bal­anced port­fo­lios. “Get cor­rectly po­si­tioned for the up­turn when it comes. And who knows when that will be? But there’s no point in a mass exit from the mar­ket. The world isn’t go­ing to im­plode. Mar­kets will come back in some form, in some way.”

And what should clients be do­ing with their port­fo­lios? Clearly, much de­pends on their risk pro­file. But Rodgers says if pos­si­ble clients should use mar­ket volatil­ity. “For ex­am­ple, by sell­ing put op­tions. Then it comes back to good, old-fash­ioned stock pick­ing. Look at div­i­dend yields, choose com­pa­nies se­lec­tively, don’t buy the whole in­dus­try.”

He says many clients are also us­ing hedge funds to their ad­van­tage. “Most hedge funds to date have had pos­i­tive re­turns. We’re see­ing some clients get­ting the ben­e­fits of be­ing in al­ter­na­tive in­vest­ments.”

Rodgers says Citi Pri­vate Bank will prob­a­bly never have a large client base in SA. Pri­vate clients are well catered for by South African firms. The bank’s main mar­kets are in Nige­ria, Kenya and Uganda, with a few clients in Botswana. “In SA we’re only looking at the very top end of the mar­ket.”

It’s his job to keep those clients wealthy. The main mes­sage is stay calm. It’s not easy now, but in­vestors who stay the course will be the ones mak­ing money in a few years’ time.

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