Managing your assets
PROS AND CONS: OPTIONS FOR INVESTORS
Franklin Templeton believes key drivers for emerging markets remain intact.
Asset fund managers face myriad challenges and concerns that can influence both the investment performance and the operating environment of the asset management firm. “One of the biggest challenges and concerns facing SA currently is the perilous state of the country’s state-owned enterprises [SOEs],” says Jo-Anne Bailey at Franklin Templeton Investments.
“These SOEs create risks for the economy as a whole,” says Bailey. “Some state companies are totally reliant on funding and debt guarantees from government.
“Meanwhile, government itself is facing huge budgetary constraints. Debt default by one of the large state enterprises will have a pronounced effect on government finances, investor confidence and the investment environment.”
This leads to another huge concern – the risk of more pressure to use investment funds to bail out these inefficient, loss-making entities.
Franklin Templeton describes this as a “tremendous risk” and a “huge concern”.
“We have noted calls from different quarters that the Public Investment Commissioner invests in SOEs to save them from collapse,” says Bailey, adding that the commissioner manages the huge Government and Municipal Pension Fund.
“The risk is that such investments will be due to political pressure rather than decisions based on proper investment principles.”
A similar concern is that government might, in time, introduce new requirements in terms of prescribed assets to tap into investment funds managed by private asset managers.
SA investors should also be aware of the risks associated with an economy heavily reliant on commodities, notes Bailey, adding that investment managers should ensure they manage these risks daily.
One way to reduce these risks is to diversify investments by considering global and foreign currency funds, and to actively seek funds focused on different industries.
Franklin Templeton has also identified SA’s continued high level of unemployment and weak education system as serious risks. “Investors and the investment industry should take cognisance of these risks because they affect the economy, political stability and financial well-being drastically,” says Bailey.
A key risk area that the authorities have given considerable attention to is protecting investors and their investments.
“Current and proposed legislation with regards to investor protection offers investors good protection.”
Bailey believes legislation that enables the Financial Sector Conduct Authority to regulate the industry is well developed and, in many aspects, better than similar regulations elsewhere in the world.
Franklin Templeton also believes that prospects for most emerging markets remain sound, despite the recent increase in volatility. The emerging markets research team recently noted that these markets have historically bounced back from external shocks quickly, displaying healthy resilience.
Emerging market economies look poised for further growth, says Bailey. The International Monetary Fund, according to a recent report, estimates 4.9% growth for emerging markets in 2018.