Resist the flight to cash
That’s the global message from a bank at the forefront
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.