Guiding consumers since 2009

Don't be swayed by doom-and-gloom scenarios

By Staff Writer

Without a very disciplined approach and philosophy when setting investment strategies, investors are likely to find themselves all at sea in the current volatile market conditions, says Mohini Naidoo, Investment Analyst at Nedgroup Investments.

Investors are still reeling from recent market volatility, which saw the local market plummet some 20% off its all time high to its low in January 2008. Billions of dollars were wiped off global equity markets in January 2008 alone. February saw the depreciation of the rand to a 16-month low against the dollar, and consensus is that the local currency will continue its downward trend through the year. The contagion effects of the sub-prime crisis were strongly felt in local financial markets, and inflation targets continue to be threatened by spiralling commodity prices. Power outages are commonplace and have dealt a severe blow to public and business confidence. In 2008 foreign investors disinvested R9.2bn in a single month, the biggest sell-off in about seven years. 

Naidoo says, "In this doom-and-gloom scenario, we asked three of our asset manager partners whether these are unprecedented historical events, and what steps we should be taking with our investment strategies."

Cyclical pessimism

Rowan Williams-Short' (manager of the Nedgroup Investments Balanced and Equity Funds) perspective on the current scenario is refreshingly different to the prevailing negativity: sub-prime is not an economic reality for South Africa and financial contagion always drifts away; nor do we suffer power outages alone. As to the massive outflows of foreign investment, Rowan maintains that there is no correlation between the level of the JSE and foreign investors' activity on the JSE, so this should not be a factor in any investment strategy. Rowan advises that investment options should be viewed dispassionately and from a long-term perspective. He maintains that recent events are categorically not unprecedented. We are enduring another repeat of cyclical pessimism, a base from which equity investing has often been very rewarding. In his experience, when temperamental investors are too greedy or too fearful, taking contrarian action has always been a good idea. He also reminds us of the positives - the latest GDP figures show that the economy grew at 5.1% last year to the envy of most western nations, and the country's fiscal position is very healthy.


Market presents buying opportunities

For Eldria Wagenaar (manager of the Nedgroup Investments Flexible Income, Bond and Positive Return Funds), the volatility has presented opportunity rather than uncertainty. She remembers the equity market fall of some 30% from its high in 2002, at which time it was difficult to even give equities away. This point of deep pessimism was in hindsight a tremendous buying opportunity with markets rallying for the next four years. At the start of 2007, the opposite was true with many investors ready to take on more risk. The quarter ended January 2008 was the first negative three month period in four years, and suddenly panic and distress were very much in evidence, only to have the market turn around again and move up, close to the old highs. Eldria cautions that risk on the currency has increased and said that some offshore exposure is a good way to diversify the risk of further currency weakness. She said that in the current environment of uncertainty, it has become even more important for investors to understand both their risk and return requirements and invest accordingly.

Build margins of safety

Neil Brown, manager of the award-winning Nedgroup Investments Growth Fund, sees the current volatility as a return to normality. He considers South African investors to have been quite spoilt over the period 2003 to late 2007, in which they enjoyed a strong local equity market and low volatility. Neil explains that the current events in SA, (such as electricity power outages and political uncertainty) might be different in nature to previous problems and events, but what is more important is to analyse how much "margin of safety" there is in current share prices. Neil's own investment approach is to invest in shares offering a decent "margin of safety" in their valuations, and to adopt a sensible diversification approach. He considers rand hedges to be offering decent value with a good margin of safety as investors have become despondent about the economy, currency and socio-political issues.

Naidoo concludes, "The rules to successful investing are simple. Keep your head, let your investment actions be guided by your intellect and not your emotion, and the chances of developing the blueprint for a successful investment strategy increase exponentially." 

Need more investment advice? Then click here

 

Recent Articles

Featured Times are tough, but keep your debt under control

While the whole world is going through a rough patch, you may also be feeling the pinch. With the country in crisis, it may be difficult to keep up with your debt instalments. However, abandoning your debt obligations is not the solution.

Debt Series Part 2: Interest rates - unpacked

In the second part of our Debt-ucate series we explore interest rates –from how to get a better rate to what influences it, and how this affects the cost of your debt.

Debt counselling – the two sides of the coin

Being overindebted doesn’t just put a strain on your personal finances; it also puts a strain on your state of mind. The best solution is to start the process of debt counselling so that you can escape the debt cycle. But what are the ups and downs of joining this debt relief programme?

Travel ban – how to claim for the loss incurred

As with the recent Covid-19 pandemic, governments sometimes issue travel bans to prevent people from travelling to other countries. This becomes even more complicated if you’ve already planned and paid for your trip. Your flights will be cancelled, and you may lose money from cancelled accommodation arrangements. How do you claim for the financial losses incurred due to a travel ban?

Deals

Get 30% back when you fill up with your Absa card

Price: Available on request
When: Daily
Where: Nationwide

Get 50% back in eBucks when you apply for an FNB home loan

Price: Available on request
When: Daily
Where: Nationwide

Get 50% off your online fees when you pay with Capitec card

Price: Available on request
When: Daily
Where: Online