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Take the bull by the horns in 2015

22 January 2015 Jonathan Faurie

What will the year hold for the South African investment space this year? It is the first budget speech that Finance Minister Nhlanhla Nene will be presenting and we are not fully aware of the true effects that Eskom’s power problems will have on the economy.

Before Eskom’s power problems surfaced, 2014 was largely seen as a positive year for local investors. While the majority of investments were still focused on offshore equities, there were signs that the JSE might end the year on a positive note. Kerry Fynn, Chief Executive Officer (CEO) of AlphaWealth Investment and Wealth Management, reflected on 2014 and looks ahead to what 2015 may have in store for investors.

Exciting 2014 trends

While many markets were still dealing with the fallout from the global financial crisis, the South African economy seemed to gain some measure of parity during the year. There were many opportunities for investors and fund managers to make hay while the sun shone, but there were some cases where the downside risk was too much to overcome.

While there were a lot of positive aspects to be taken of the year, Fynn pointed out that global investments still took centre stage, and will continue to do so for the foreseeable future. “One of the biggest achievements of 2014 was that worldwide equities reached $66 trillion in value in August. There was also a better than expected pass rate for European bank stress tests with results released in October,” said Fynn.

The fact that global equities are gaining significant momentum suggests that this will be a significant area for growth during the year. The well-publicised problems that South African mining companies have had to deal with are still causing waves in the market with many feeling more than skittish about local resource investments. This is evident by the tendancy to invest in offshore resource companies rather than local resource companies.

A cause for worry

Geopolitical risks play an important role in investment decisions. While there was a peaceful resolution to the 2014 South African presidential elections, recent terror attacks in Canada, France and Nigeria will have an effect on the market. After the initial attack on Charlie Hebdo, the Euronext (CAC 40) index finished significantly lower than it did the day before the attack.

“The numerous religious and terrorist attacks and wars occurring across the world is concerning for investors who typically look for investment destinations where the geopolitical risk is low,” said Fynn. The reason for this is that a stable geopolitical landscape presents fewer risks for market fluctuations.

While there was a peaceful resolution to the 2014 South African elections, it does not mean that South Africa does not have its own problems. Ongoing service delivery protests and wage increase strikes at times threaten to cripple our economy. The postal strike towards the end of the year lasted three months while a platinum strike at the beginning of the year lasted for five months.

A year of positivity

While there was some uncertainty in 2014, the portents indicate that 2015 will be a positive year for investors. “We expect alternative investments to play a more important role in portfolios as equity returns mean revert and bonds risk versus reward dynamic come into focus. Diversification will be key in 2015,” said Fynn.

There will also be a continued recovery in the US as the Fed is forcing banks to become tougher on loan and bond applicants. This is not necessarily a bad thing as it was this unsecured lending which lead to the most recent global financial crisis.

Editor’s Thoughts:
2015 may be the year that investors can cash in on the slow nature of the markets over the past two years. With the terror attacks in France and Canada, the year has started off on a volatile note, however, diversification may be the answer to overcome the inherent risks in the market. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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