Getting used to the new normal
In a world of fragile economies, there has been an investment awakening among the public who want to ensure that their financial future is being taken care of.
Financial advisers and fund managers are playing a central role in this awakening and have been receiving very explicit briefs from clients that finding alpha needs to be their number one priority.
This is the challenge that faces the investment industry today and is one that was discussed in depth at a recently held Liberty panel discussion on where to find growth in a challenging environment.
The world gone mad
One of the major contributors towards a stable economy is the country’s macro-economic outlook. This is largely driven by politics; therefore, it is no surprise then that South African investors are looking to allocate as much cash as they can towards offshore investments.
However, this is also proving to be a tough channel to navigate through. The Italian economy is currently in dire straits and has an unsure future when it comes to its participation within the European Union (EU). The UK is finding that its divorce from the EU is likely to be messy, and that the US is experiencing growth until its trade war with China starts to impact the economy and the Republican party possibly loses when the mid-term election results are released.
“We need to look at what the new drivers of growth will be,” said Xhanti Payi, Economist and Director at Nascence Advisory & Research. “Many economies in the world that were traditionally safe havens when it comes to investments have been experiencing long periods of volatility within their markets. This means that nationalism on a global scale is being driven by volatility as countries seek to look after their own interests.”
Payi added that the current impasse between the US and China is bad for markets in the sense that it has cast a bit of a shadow on what was an amazing emerging markets growth story.
“The world is a bit worried when it comes to the growth of emerging economies. Many economists are now asking whether emerging economies are actually on the same page as developed economies when it comes to levers of growth. Economies need to adjust to the new normal if they are going to grow in the future.
Treading cautiously
Vimal Chagan, Divisional Director of Investments at Liberty, pointed out that because of the volatility that is seemingly entrenched in markets, fund managers are naturally inclined to gravitate towards cautious investing. This is why balanced funds are currently outperforming equity funds.
Natalie Phillips, Deputy Managing Director at Investec Asset Management, pointed out that investors cannot just take their money offshore and think that it is a job well done. More work needs to be done.
“While it is a tough time to go offshore, there is some value in the EU. There is also some value in the USA, but this is in cash and not equities. Asia is where the most value lies. Structurally, China is very economically sound, so it is a no brainer that investors should be focussing their attention there,” said Phillips.
The big European issue
Payi pointed out that the fact that there is so much volatility in Europe is worrying for South Africa because the region is our biggest trade partner. It is therefore vital that the volatility in this region gets resolved.
However, this resolution is far from being discussed let alone achieved. Mark Lovett, Head of Investments at Stanlib, pointed out that Brexit is having a significant impact on the UK.
“The UK has never fully recovered from the Global Financial Crisis. South Africa was largely protected and didn’t feel the worst effects. There was a time when British citizens went home on a Friday wondering if the banks would open on a Monday. This was the starting point for the events that led up to the Brexit vote,” said Lovett.
He added that volatility has become a feature within the European economies. In the past, this was managed by quantitative easing, it will not be managed in this way in the future.
“Investors will need to think about their drivers of growth very carefully. Diversification will be key to facilitating growth, but again, investors need to be careful about how they will achieve true diversification,” said Lovett.
Editor’s Thoughts:
Investors would be forgiven for feeling like they have just gone through 12 rounds with a heavyweight boxing champion. Finding alpha is tough and it is testing the mettle fund managers to the core. The question is, will they survive this volatility? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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