Not the end of the world

Global un­cer­tainty is just about the only cer­tainty in 2017, but it may bring op­por­tu­nity, writes Jo­hann Barnard

Financial Mail - Investors Monthly - - Feature: Global Investing -

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-

less nights.

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


Michael Sas­soon

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