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.

Weekend Argus (Saturday Edition) - - GOODPASTIMES -

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).

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