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Global markets rebound in era of uncertainty

22 July 2019 Kevin Caden, director at independently owned financial advisory firm at Iza Wealth

Offshore exposure provides South Africans with counterbalance to local volatility

As the Brexit deadline looms, the US-China trade war continues and South African President Cyril Ramaphosa announces yet more bailout money for Eskom that the country simply doesn’t have, the only certainty at the moment – whether big global events or localised challenges - is that the outcome is uncertain.

The rebound in global equity markets in the second quarter may imply volatility to accompany the general sense of uncertainty, and investors may feel panicked, but Kevin Caden, a director at independently owned financial advisory firm Iza Wealth, says that in times such as these it is as important as ever to stay true to the fundamentals of wealth creation.

Uncertainty may be unnerving, but it is not the first, nor will it be the last time that geopolitical forces influence markets. Similarly, South Africa has seen many lows and its fair share of highs, but uncertainty or volatility is certainly no reason to lose sight of investment goals, he says.

“What we are seeing at the moment is not atypical of near-end bull market cycles,” he says. “Market volatility has been primarily driven by macroeconomic factors and perceptions of uncertain futures. This can be expected.”

He adds: “Riding out the ebbs and flows of market cycles may prove emotionally taxing, but that’s precisely why a medium to long-term investment strategy needs to be devoid of impulse and driven by strong research and exposure to a broad range of geographies, risk profiles and hard currency.”

South African equity markets followed the same broad trends of their global counterparts, posting significant losses in May only to recover strongly in June.

Caden says South African capital markets are volatile by nature. This is because South Africa is seen as a leading and liquid emerging market. “South African capital markets are often used for trading the ‘risk-on and risk-off trades’ globally,” he says. This is in contrast to investors choosing markets such as the UK, US or Switzerland for long-term, safe havens.

This doesn’t mean that South Africans are stuck in a perpetual cycle of volatility, explains Caden. South African investors can enjoy solid, long-term wealth preservation and creation just like their foreign counterparts.

“Having exposure to some of the best stocks in the world, in hard currency, provides investors with peace of mind – and a financial safety net of sorts - when news headlines talk about SA’s credit worthiness or investors start becoming jittery about Eskom’s risks to the national fiscus.”

The key to smart investing doesn’t lie in being dogmatic, emotional or reactive to headlines. Investing, explains Caden, should be driven by research by independent financial minds, and portfolios should be designed to offer just the right amount of risk and diversity.

“It is quite possible to be highly patriotic towards South Africa and be passionate about its prospects, all the while enjoying the fruits of a proper offshore, diversified portfolio.

“The world is an incredibly diverse and dynamic place, and carefully considered exposure to various geographies and stocks over the long term is the time-tested model for wealth creation. Let professionals analyse headwinds and tailwinds, let the pilot steer the jet, but make sure the fundamentals get you airborne in the first place.”

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