KEEP UP TO DATE WITH ALL THE IMPORTANT COVID-19 INFORMATIONCOVID-19 RESOURCE PORTAL

FANews
FANews
RELATED CATEGORIES
Category Investments

Choose carefully

02 September 2004 Angelo Coppola

STANLIB believes a different private investor mindset is needed for a new era in which the rand is neither a punching bag for strong currencies nor a heavyweight performer.

Paul Hansen, STANLIB’s Director of Retail Investing, says the key message is that private investors cannot assume the rand is pre-destined to resume its 20-year trend of losing nearly 8% of its value annually.

Hansen points to two “aberrations” in two-and-a-half years. The first occurred when the rand collapsed to 13.85 to the dollar. The second occurred when it bounced back to become the best performing currency in the world over the past two years-plus.

With the aberrations out the way, some investors may assume the rand will return to “normal”, follow the 1981 to 2001 pattern and shed enough value each year to assure good offshore returns even when markets are sluggish.

Hansen believes offshore investment is still essential in a diversified portfolio.

Perhaps the main reason for investing offshore is no longer because of rand weakness but rather for sensible, sane diversification, ie to place investment eggs in different global baskets outside of the southern tip of Africa, which comprises a 0.6% of global stock market value and even less of global money and bond markets.

He also thinks the medium and long-term trend will be further rand weakness – but not nearly so marked as before, with declines occasionally interrupted by periods of strength.

“The new situation,” he explains, “will be much more complex than 20 years ago. Private investors will need good advice on which markets to enter, when, and what asset allocations are most judicious across perhaps equities, bonds,currency funds and alternative investment funds.”

To substantiate the STANLIB view of complexity rather than certainty, Hansen points to recent currency market experience.

In the three months to the end of April, the rand lost 8% of its value against the US dollar. The greenback then lost 3% of its gains against the rand in a single week. Over the same period the rand weakened against most other currencies.

Any comparison with the 1980s suggests the past is an unlikely template for the future, says Hansen.

Then:
* The economy was stagnant or shrinking
* Inflation was a nightmare
* Government spending was out of control
* The economy was based on commodities
* Commodities were entering a long-term bear phase
* Sanctions were biting and export-led growth was a pipe-dream.

Now:
o The economy manages modest but steady growth year after year
o Inflation has largely been tamed
o Government shows admirable fiscal discipline
o The economy is more broadly based; commodities are still important but are not the only contributor to SA’s bottom-line
o Commodities have broken out of a 20-year bear trend
o Foreign exchange reserves have risen sharply.

Hansen adds: “In the new situation, simplistic solutions like ‘stick everything into US equities’ or into US dollar cash are just not appropriate. The consumer requires information on markets like China that were not open to us previously and industries that hardly existed or were in their infancy.

“Vehicles like alternative investment funds are also very novel.

“Dealing with complexity is a challenge. One of the best ways of getting to grips with it is by taking a long-term view. Advisers who stress the necessity for a strategic approach to global investment will be doing their clients a world of good.”

Health warning:
Nothing in the article should be construed to be advice. If you are contemplating investments of any nature, consult an accedited expert.

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
fanews magazine
FAnews November 2021 Get the latest issue of FAnews

This month's headlines

New proposals to amend PPRs have major impact
The untold truth about intermediary agreements
Rethinking claims
Tik-Tok: The clock is ticking on SA’s R45 billion unclaimed benefits bomb
Medical schemes’ average increases for 2022
Disability claims aggregation
Subscribe now