Ignore Trump’s sabre-rattling and hold tight

Mica Townsend, Business Development Manager at 10X Investments.

The much-feared risk of a global trade war has become a reality. President Donald Trump’s announcement about tariffs on goods from China and the European Union’s implementation of tariffs against US goods have ignited the powder keg of this war. Many South Africans feel unconcerned at these developments far away from us; others fear impending collateral damage on our economy.

Mica Townsend, Business Development Manager at 10X Investments, warns that Trump’s embrace of increasingly protectionist trade policies might have a negative effect on the South African economy.

“Emerging economies such as South Africa are especially vulnerable as they are often exporters of resources and produce that are the first targets of such tariffs. They also tend to have less diversified economies to absorb this impact,” she explains.

Townsend, a Chartered Financial Analyst, says, “The worry here is that each country responds with its own tit-for-tat tactics, one by one bringing in their own tariffs, simultaneously raising the burden and overall cost of trade for everyone involved,” she says.

As for South African investors, Townsend advises that they should not let themselves be distracted and start chopping and changing their own investments.

“Just as governments have to be very careful not to respond with a knee-jerk reaction to each and every event, individuals and companies should remain focused on their long-term plans and use all the tools at their disposal to see through the noise,” says Townsend.

She urges investors to take care not to get too distracted by global issues like unstable commodity prices, a volatile dollar, or a recession in countries that are net importers of South African goods, for example.

“Remain focused on your own investments and goals,” she urges. “While it is valuable to stay informed about what is happening in the world, investors should not respond by replacing their long-term plans and policies with short-term, reactive ones.

“The global noises often result in conflicting messages and, if investors aren’t careful, they can find themselves chopping and changing their investment portfolio, their manager or their strategy all too often. Major changes to your portfolio should be motivated by changes in your personal circumstances or your own goals, rather than being driven by unpredictable external events,” says Townsend.

“This is where human behaviour often works against our own best interests and we need to be careful to be less emotional and less reactive with our investments. It is important to settle on the right investment strategy and stick with it.”

She adds that the same applies in the institutional space.

“In order to ensure the best outcomes for their retirement funds, the decisions that trustees and management committees need to focus on is not what is happening in certain economies or with specific politicians.

“They need to focus on what they can control, namely making sure they have the right long-term investment manager with the right low-cost investment strategy. Once this is in place there is no need to change track with each new global or domestic shock.”

Townsend adds that just as the management of a corporation wouldn’t change their business strategy with every global event the same approach should be taken with their investment funds. “Businesses aim to generate wealth for the long term, and their retirement funds should be aligned with this.”