Economic and political uncertainty

SA investors to review their portfolios amid economic and political uncertainty


Many South African investors are uncertain about their investment choices given the country's ongoing political and economic turmoil. Uncertainty is making it difficult for investors to know whether to remain invested or liquidate under-performing investments. There is also uncertainty about whether to choose cash or equities, and whether to invest locally or abroad.

“Lately, even experienced investors appear to be unsure about the markets. Some fund managers are openly acknowledging that they are less confident about managing their clients’ investments. Ultimately, it is becoming ever more difficult to make major decisions in an environment that can change drastically overnight.”

This is according to Dr Anton Hay, Director at Ecsponent Financial Services, a subsidiary of the JSE-listed African financial services group, Ecsponent.

“Successful investors are able to identify good opportunities regardless of market conditions. The old adage to buy low and sell high remains true in all seasons. However, to achieve long-term success, they also know when it is time to cut their losses. Sometimes investors must accept that an investment, which may once have been a shining star, is now a ticking time bomb.”

Dr Hay notes that for many local investors, the greatest challenge is knowing when to liquidate an under-performing investment. This is because they are unsure whether the under-performing investment will continue to decline, or recover. He says, “Selling on a whim is always a bad idea. Investors will always face short-term losses while markets correct or sentiment changes. However, you shouldn’t ignore the facts or put yourself under unnecessary strain when an investment is under-performing for reasons that are not market-related.

“You may be holding on to an investment for the wrong reasons when your original investment goal has changed. Or if you cannot risk losing any more value and there are other attractive opportunities available.

“It is important to ignore sentiment and trust your common sense,” Hay advises. He suggests that investors identify their “point of no return“ for all investments and build in a stop-loss system. “This will help investors make rational rather than emotional decisions. It could be a lifeline for investors who are reluctant to sell.

“This ‘point of no return’ could be a 20% drop in value over a specific time, for instance,” Hay explains.

He continues, “It is also important to be at peace with your decision to sell. If you find yourself thinking about what-if scenarios, consider the facts realistically. If the investment could recover, would the returns be comparable to the opportunity cost lost? Not likely. Additionally, the peace of mind of a more predictable investment and improved returns, is priceless."

Given current conditions, investors are increasingly turning to fixed dividend or interest-bearing products. With reduced performance risk, this conservative approach aims to ensure steady returns in this uncertain investment climate. “An investment that offers stable, predictable returns, like Ecsponent’s preference shares, will reduce the risk of volatility, capital loss and poor performance. Your exposure to the influence of economic uncertainty and market volatility is minimised and you don’t have to spend time trying to time the market,” Hay added.

A fixed-rate investment product makes the yield, period and objectives clear. Investors will have no surprises and lose no sleep if this type of investment suits their long-term investment plan.

“During times of uncertainty, investors want some level of stability. This seems like a contradiction in terms, but with the right financial partners and expert guidance, it is possible to turn a negative experience into a positive one,” Dr Hay concludes.

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Issue 72