In a market that has the jitters about junk status, one would be surprised to learn that Government Bonds sales have tripled in comparison to the previous year. Another surprise may be the Rand, which did not reach the levels some pessimistic investors may have believed it would.
The Moody rating has remained above junk status, although we still have two more rating agencies paying us a visit in the coming month to pass their judgement.
Investors pre-empt notable shifts
However, I do believe that markets and investors are already pricing in the strong possibility of South Africa going to junk status. This could result in markets not falling as sharply as it would in the case of a sudden unexpected negative event such as 9/11 or other major terrorist attacks that catch investors off guard and sees markets react badly, chasing after gold and fleeing equity on a downturn.
So with that in mind, will the markets get better or worse? It’s hard to say as no investor or institution has that glass ball. However, I do believe the days of double-digit returns may allude us in the year ahead, with cash making returns above equity at the moment.
Evaluate investments over a longer term
However, one must take three factors into account right now. Firstly, moderate or aggressive investors would be following a mandate that sees returns based upon five to seven-year averages rather than based upon just one year. If you do that the returns historically are more attractive, with averages in the Balanced fund sector still achieving above 10% per annum.
Lower fund performance does not equate to a loss
The second factor one must consider is that moving out at these levels, will result in you locking in your loss. As history tends to repeat itself markets do pick-up, which would eliminate potential losses.
Lower market performance is a great time to invest
The final factor is that right now there is a buying opportunity rather than a selling opportunity. This is why you should also see more mergers and acquisitions of listed companies going forward. A lot of corporates have been building the war chests for this exact reason. Look at companies like Steinhoff and Naspers. Both are trying to expand in Europe and other markets, via acquiring good value companies to add to their stables.
So my advice is, not to panic but remain firm and as the expression rings; don’t time the market but rather spend time in the market. Wise words in this economic climate when sometimes the easiest route isn’t always the best one.