It’s time to reassess your investments across asset classes
The investing environment after the credit crisis is very different from the pre-crisis one. Your allocation of assets needs to reflect the changing times, writes Laura du Preez.
South African investors need to reconsider their asset allocation decisions for the “new nor mal” global order, both locally and in foreign markets.
This is the view of local asset managers, who have highlighted aspects of what we take for granted that need to be revisited.
One concerns our view of inflation and its affect on the returns we expect from different asset classes, while the other concer ns our views on the local equity market versus offshore markets.
The phrase “new normal” was coined to describe the world since the credit crisis. This is a world, particularly in developed countries, that will be characterised by high unemployment, high levels of debt that need to be paid off, rising savings rates and less borrowing, possible deflation in the short term followed by high inflation, less international trade and tighter regulation of financial markets.
But while deflation followed by rising inflation may be a threat to the global economy, locally asset managers and economists expect an inflation rate at the higher end of the range of three to six percent as targeted by the Reserve Bank.
As an investor, you should be aware of how this will impact on the retur ns expected from different asset classes.
Another asset allocation decision you may need to reconsider is how much you have invested in South Africa and how much offshore.
South African investors have most of their investments in the local market, a decision that has paid off over the past 10 years, when investments in the local market have outperfor med many made into foreign markets.
It may be time to reconsider not only the proportion of your local to foreign exposure but also your developed market to emerging market allocations (see story below).