Cool heads needed now more than ever

Francois le Roux, Certified Financial Planner (CFP®) at Old Mutual Private Wealth Management.

The fragility of the economic landscape that plagued local investors throughout 2017– peaking in December with the election of Cyril Ramaphosa as leader of the African National Congress (ANC) – was all but forgotten following Jacob Zuma’s resignation.

While this newfound positive momentum continued to build through the recent SONA and National Budget Speech, President Cyril Ramaphosa’s cabinet reshuffle may trigger the resurfacing of some political uncertainty on investment returns.

This is according to Francois le Roux, Certified Financial Planner (CFP®) at Old Mutual Private Wealth Management, who says that while investors are unable to control markets or political developments in the country, they can control their behaviour and the way in which they react to avoid uncertainty unnecessarily spilling over into their investment landscape.

The good news, says le Roux, is that sentiment around the political situation has improved substantially following the recall of former President Zuma by the ruling party. “Since winning the ANC presidency in a tight race - and being sworn in as President of South Africa - Cyril Ramaphosa has made all the right noises to build investor confidence in terms of his focus on economic growth, combatting corruption and fixing state owned enterprises.” His appointment of Nhlanhla Nene as finance minister and Pravin Gordhan as minister of public enterprises, has been well received and viewed as the first step to putting state finances on a sustainable path.

Izak Odendaal, Investment Strategist at Old Mutual Multi-Managers (OMMM), warns however, that this positive sentiment has mixed implications for local investors. “Regarding the investment implications, the current environment is clearly a positive backdrop for local bonds. The JSE, however, is dominated by companies that do business globally, and while they should benefit from stronger global growth and firmer commodity prices, these shares are impacted in the opposite direction by the rand exchange rate than domestically-focused shares.”

This makes things tricky in the short term, he explains. “If the rand strengthens, it could drag down the JSE at an index level but some sectors will do very well. Because of these global players listed on the JSE, the overall local market also never became cheap, even as the domestic economy struggled.”

Just as during times of volatility, investors should be encouraged to keep a cool head about their decisions during this period of political optimism, says Odendaal. “Most investors agree that a well-balanced and diversified investment portfolio that takes on a long-term perspective will serve best through different market cycles.”

He goes on to explain why market events, whether they are positive or negative, shouldn’t cause investors to make knee-jerk decisions. “Markets are moved by surprises, however, investors need to take into consideration other underlying market factors and long-term trends, rather than making an investment decision based solely on what they read in the news headlines.

“This is where seeking expertise from an experienced financial planner can assist in avoiding financial losses when reacting to market events,” Odendaal adds.

Le Roux points out some of the themes of discussion that financial advisers and investors should be having at this point to discourage investors from abandoning their financial plans and resultant investment strategies.

“Each lifestyle financial planning conversation is based on a detailed lifestyle-income needs analysis, where-after the required investment returns are then discussed, followed by the asset allocation and appropriate risk exposure needed to reach a required goal. If investors are feeling uneasy, they should be consulting with their financial adviser to put their mind at ease as to whether they are still on track to reaching these goals.”

In such an investment landscape, he adds that expectations also need to be managed between financial advisers and investors. “Reasonable, rational and realistic expectations are needed in the current situation as portfolio returns over the past three-years with a sideways moving JSE since mid-2014 till June 2017.”

Le Roux concludes, “As always, and if not more so now than ever before, asset allocation remains key for long-term investment performance to navigate the uncertain markets local investors are expected to face in the coming months.”