Where to buy in a recession
Fortunately, there are some asset classes that perform better during economic uncertainties, says Jo-Anne Bailey, Franklin Templeton sales director and country manager for Africa. Jo-Anne Bailey (JB): Declining growth would typically negatively affect the earnings of local companies, including those listed on a stock exchange. It will also have an impact on listed property and fixed-income assets. Typically, markets are forward looking and will price in some of the recessionary impacts by discounting those assets that will be negatively affected in a recession.
Assets that act as a relative safe haven, such as fixed-income products, tend to outperform. The average investor will see a stronger decline in his investments if he’s more exposed to local equities. Usually well-diversified investment portfolios that include some offshore exposure should be less affected by a local recession. Assets such as fixed residential property can face declines. JB: [Yes] … Short-sighted investors are likely to make hasty decisions such as selling into a decline, only to miss the general upside that comes when a recession ends. JB: Investors should reassess their investment strategies at regular intervals as part of long-term planning, irrespective of whether there is a recession or not. Typically, a long-term plan would cater to the vagaries of the markets by having diversification and not being overly concentrated to the impact of a recession. JB: It really should not look much different; the investment strategy is based on combining asset classes that can provide risk-adjusted returns through market cycles to meet long-term goals. During a recession, this focus should remain in place. Adjustments being made are because the recession may have highlighted concentration risk that needs to be addressed. JB: Offshore assets would be recession proof [from the local recession]. Commodity assets would not have a correlation with a local recession, but they have their own dynamics and can be quite volatile on their own. Locally, in absolute terms, cash assets would be recession proof from a capital point of view but the income would not be if interest rates had to fall.
This is an excerpt from a full interview on Moneyweb. – Moneyweb