Not the end of the world
Global uncertainty is just about the only certainty in 2017, but it may bring opportunity, writes Johann Barnard
It’s a volatile period and it’s unclear how some of these things are going to pan out, both in SA and the world
G enerally speaking, six years is not an unreasonable time horizon over which to expect some growth in an investment portfolio. For SA investors though, the past six years have been devastating for the performance of the rand against the US dollar.
In the six years from February 1 2011 to February 1 this year, the rand declined by close on 50%, from R7.12/$ to R13.4/$. During this time, the country and currency also had to weather the shock firing of finance minister Nhlanhla Nene in November 2015, which sent the rand into free fall.
We have become so accustomed to the rand being bullied by hard currencies like the dollar that it’s difficult to remember when last the exchange rate was in single digits against the greenback. For the record, that was around October 2013.
It is within the context of the steady — and at times accelerating — decline of the rand that the question of offshore investment raises its head. This is far from a cut and dried argument in favour of offshoring a portion of one’s assets.
Take 2016, for example: the rand actually increased in value after the UK’s vote to leave the EU, and it was bolstered by the surprise rally in commodity prices.
The rapid change in the fortunes of the rand and major economies in the past 12 months illustrates the tremen- dous uncertainty that investors and investment managers have to navigate.
“It’s a volatile period and it’s unclear how some of these things are going to pan out, both in SA and the world,” says Michael Sassoon, head of Sasfin’s wealth division. “So it is more difficult to navigate. Investors have to recalibrate more often than they did some years ago.
“With these big political and technological shifts I think that you have to be reevaluating your position far more frequently and therefore be willing to adapt. However, you need to be cautious that this does not force you to jump from place to place in a reactive manner.”
This is far easier said than done, especially for local investors who may be feeling jittery over the future trajectory of the economy and the polit- ical stewardship of the country. It has been evident for a while now that domestic growth is far from where it needs to be to address many of the ills that hamper our prosperity.
Allied to this, the currency will naturally be depreciating against the likes of the dollar purely on a purchasing power parity basis, given the differential in inflation rates.
Taking cash abroad and/or investing in global markets therefore make absolute sense for local investors wanting to preserve or grow their wealth.
The problem is that the global environment is anything but secure, and the year ahead promises greater uncertainty. The fallout from the UK’s Brexit vote and the election of Donald Trump to lead the world’s biggest economy are expected to be dominant themes, though elections in France, Germany and the Netherlands could easily cloud the global picture.
Prudential Unit Trusts MD Pieter Hugo argues that opportunities are bound to emerge from such uncertainty.
“Though volatility could be an uneasy ride for investors, on the other hand it also creates opportunities when markets overshoot either up or down. Good quality companies, and even countries, suddenly become very cheap or very expensive. So, it’s not necessarily all bad,” he says. “The risk for clients is that the volatility could prompt them to make changes that don’t always work out for them.”
He cites the knee-jerk response to the collapse of the rand at the end of 2015, which resulted in a flight of capital abroad at a time when the rand was at its weakest. This counterintuitive response by investors may be a natural reaction to such uncertainty, but it causes investment managers sleep-
With the currency having recovered to below R14/$, clients are better placed to move money offshore. As is their wont, however, the previously panicked investors appear not to be taking advantage of the stronger rand.
Hugo cautions investors against making changes to a portfolio too often, and says an annual review should be sufficient in most cases.
“Clients should only make serious changes to their portfolios once something significant has changed in their lives. I’m a big proponent of outsourcing the asset allocation decisions to the experts who continuously look at this . . . if changes in asset allocation need to be made they can do that within the mandates of the fund,” he says.
“If the client is doing his/her own asset allocation and investing only in equity funds, equities, cash or bonds you need to look at [the portfolio] more frequently.
“If a client wants to invest R500/month you can do that easily online, but as soon as the amounts start getting bigger my view has always been that there’s definitely value in getting the right advice. We pay for the best advice in medical and legal matters, but for some reason we don’t want to pay for financial advice.
“The interesting thing about financial advice is that the value isn’t delivered every day. It comes in spurts and typically in ‘noisy’ times and when markets react in the extreme — this is when a proper financial adviser can add a lot of value.”
It is near impossible to forecast what 2017 will offer SA investors from a global perspective. Uncertainty may offer up long-term opportunities, but a circumspect approach to international markets is likely to be the most popular — and most prudent — route.
Pieter Hugo … opportunities are bound to emerge from uncertainty