Financial Mail - Investors Monthly
MARKET JITTERS
Ride out the turbulence
It’s easy to focus on the money managers tasked with investing their clients’ money wisely, writes
Johann Barnard. But what is the sentiment out in the wild, where investors are taking hits from every angle? Who better to ask than the asset managers dealing with queries of an increasingly fearful nature.
It’s important to emphasise the use of “fearful” rather than “panicked”. Panic would be South Africans flogging cash and assets to reduce their local exposure, as they did after then finance minister Nhlanhla Nene was fired in December 2015.
Those who panicked and moved assets offshore at the point the rand was at its weakest would rightfully feel a little sheepish today.
“People who went offshore after Nene was fired saw the rand perform very strongly and lost money on their investments,” says Izak Odendaal, investment strategist at Old Mutual Multi-Managers.
Though the rand lost some ground after Pravin Gordhan’s axing, it has not been as pronounced, and investors appear to have been less spooked.
In fact, Odendaal says the silence from clients has been deafening. “There’s almost a sense South Africans are numbed by political uncertainty. There have been so many instances when Gordhan was about to be fired, it’s almost like the boy-cried-wolf scenario that has made us accustomed to political uncertainty.”
A scarier prospect than the numbing of senses is allowing an air of resignation to set in.
36One Asset Management co-founder Cy Jacobs alludes to this when he says investor appetite is muted, but may improve “once people feel okay with the new norm”.
The ability to adapt reflects resilience, which local investors have had to have by the bucket load. But even these reserves may have their limits.
RMI Investment Managers CEO Chris Meyer says investors’ interest in entering the market is “subdued and confused”.
“Even professional investors don’t know how to manage money in this kind of market . . . It’s difficult to make big decisions in this environment.
“Over the long term, it has generally been a good idea to buy in the dips in equity markets. The question we’re asking right now is whether this dip in equity markets is enough or [whether it] is a small first sign of something more sinister that could still come.”
There doesn’t seem to have been wholesale panic in the markets after Jacob Zuma’s cabinet reshuffle. This could be due to the numbing of senses, or because asset managers are getting through to their clients.
“Investors are jittery, and it’s really a question of ‘we’ve been through this before, don’t panic’. There’s a lot of noise in the system,” says Mark Appleton, head of SA strategy and multiasset management at Ashburton Investments. “We’ve been communicating with [investors] and emphasising that it’s important to have a portfolio that is well diversified.”
Communication is crucial to calming nerves and preventing investors from making illadvised moves.
PSG Asset Management CEO Anet Ahern says the danger lies in taking a binary decision that removes all money from the market.
“It’s like trying to pinpoint a spot in the ocean when it’s stormy. You’re surrounded by noise and volatility, and you’re taking a decision based on one data point,” she says.
“To react emotionally at the time of panic is seldom rewarded in the long run. Sometimes people panic on the first day after an event and they are right for a little while and they feel good. Then the market normalises . . . and returns to where they sold out.
“It’s difficult to get back in if you take all the money off the table. It’s better to tweak around the edges.”
Meyer’s reference to “subdued and confused” investors appears increasingly apt. And who could blame them (us) for feeling like a deer in headlights.
Offering some solace, Old Mutual’s Odendaal says the lessened impact of the cabinet reshuffle is also due to generally more positive conditions.
“The global environment is far more favourable to SA than 18 months ago,” he says. “[The firing of Nene took place] at the height of outflows from emerging markets, the bottom of the commodity cycle and as the US Fed was getting ready to hike interest rates for the first time in a decade.”
Among the positives, he sees a returning interest in emerging markets as sources of growth. He also says the downgrade will have averted aggressive interest-rate hikes. And the recovery in commodity prices since last year places us on more solid ground.
There is little to inspire confidence for the average investor. Those with a more aggressive bent may be looking to exploit opportunities in lower prices for good-quality assets or betting against the rand.
The challenge for investors is not the range of choice, but making the right choice with certainty. And with so much of political, financial and everyday life in flux, it’s difficult to say with confidence from one week to the next whether a decision is correct.