Market direction is haywire so spread out, says Absa

Market direction on any day, week or month is haywire at the moment, so investors better spread out and diversify.

That’s the message from value-driven asset manager Absa Investments, a firm known for its commitment to strategic diversification and astute asset allocation.

Craig Pheiffer: General Manger: Investments, Absa Asset Management Private Clients, notes: “The one constant about the markets these days is volatility. It’s not uncommon for markets to move from a state of total euphoria at the morning opening to a state of downright despair by teatime.

“Investors move from one economic indicator release to the next, looking for clues to the health of the global economy and extrapolate that into the future. With myriad confidence, production, consumption, trade, employment and housing statistics coming out of the USA alone, it’s easy to see why markets get pushed from pillar to post between each indicator reading.”

The daily percentage change seen over the past two-and-a-half months on the FTSE/JSE All Share index confirms the lack of any discernible trend and the extent of market swings, particularly in May.

Historically, equities are the most volatile asset class. Over the year to mid-June, total returns on the JSE All Share index eased just 0.23% higher, but in between plunged dramatically in early February, rose steeply in mid-April only to return to their January starting-point.

“Recent experience highlights the short-term unpredictability of markets and the futility of trying to second guess where the market is going to go on an hourly, daily, weekly or even monthly basis,” says Pheiffer.

“What we do know is that in the short term the equity market can be the most volatile of asset classes, but over the longer term it is the one place to be for real returns; that is, returns that outpace inflation.

“With all the uncertainty and volatility it is important to diversify one’s portfolio across asset classes. The percentage of an investment portfolio that equities will comprise will vary from investor to investor and will depend upon each investor’s unique investment objectives, constraints and tolerance for market risk.”

In such an environment, he says it is important that investors obtain professional guidance on the appropriate portfolio structure.

The need for a guiding hand is spotlighted by some contradictory developments.

In uncertain times, a flight to quality is often seen. Blue chips may then do well. But Pheiffer points out that for the year to mid-June the large capitalisation Top 40 index showed a loss of 1.09%.

He says “a general element of risk aversion for smaller stocks” was evident, yet stocks on the Alternative Exchange attracted investors eager to find value. As a result, the Alt-X 15 index moved 4.97% higher.

“In times as uncertain as this,” says Pheiffer, “a clear strategy is more important than ever – another reason for seeking quality advice from highly qualified professionals.”