Keep calm and diversify... as the world votes

By: Siobhan Cassidy, MoneyMarketing Contributor

As fund managers and businesses around the world sit on a pile of cash waiting for national election results in at least 64 countries this year, local investors are urged to ignore the noise and not make knee-jerk investment decisions even as the levels of noise rise as we march towards 29 May.

According to Economist Iraj Abedian, Chief Executive Officer of Pan-African Investment & Research, the number of elections this year is consequential for the global economy and for fund allocations. “For the first time in the past 50 years, there is no shortage of money, funds and investable opportunities.

“Most important of all these is the US elections, with the prospect of Trump 2.0 changing global security and geopolitics considerably,” he says, adding that “such an outcome will have a massive impact on investment returns and security of investments”. This means that not only the fund managers, but also the corporates who are typically the source of foreign direct investment, must hold back, using the principle of “when in doubt, sit it out”. Abedian adds, “For as long as the global picture stays uncertain, private sector investors are likely to remain prudent, doubtful and extremely cautious, but remain cash flush.”

What about the local market?

Focusing the lens on the individual South African investor, Izak Odendaal, Chief Investment Strategist at Old Mutual Wealth, says elections in other countries don’t generally matter much, apart from those in the US. Odendaal agrees that all eyes would be on the American election in November because it “could be market moving”, and “when US markets move, SA markets are definitely also impacted”.

But for local assets, other experts agreed that any movement in the SA market as a result of the local election was likely to be on the upside, largely because the market had already taken account of much of the insecurity.

Odendaal says, “a lot of bad news has already been priced into local assets” and there was “scope for a positive surprise once we get past the uncertainty of the local election”.

Senzo Langa, Deputy Chief Investment Officer at Alexforbes, says that, given the possible impending shifts in the global political landscape, “it may be fortuitous that large South African fund managers keep a healthy exposure to local assets”. He adds that favourable valuations are also driving this.

Old Mutual Investment Group (OMIG) also says they were starting to see some value come through in South African equities. Meryl Pick, OMIG Head of Equities Research, says that while some may see this as surprising considering the amount of uncertainty surrounding the elections, “the best approach against this backdrop is diversification and, currently, local appears lekker”.

She adds, “There is so much negativity priced into the rand and bond yields – sentiment is low, offshore investors have run away, and we have fallen out of many global indices. If we hold a peaceful election that delivers either a small ANC majority, or coalitions between the ANC and other small parties, or the ANC and a moderate opposition, we could see a significant rally in local-facing equities and bonds. Considering these numerous scenarios and unknown variables, diversification is indeed our strongest defence against such uncertainty,” Pick concludes.

Avoid the panic

Odendaal concurs, adding that a ‘positive’ election outcome could see local bonds rally; a ‘negative’ outcome could see the rand weaken, boosting offshore investment values. “Having a diversified portfolio can hedge against most outcomes.”

The various managers’ agreement extends to the idea that local investors, as far as possible, should try to stay calm and not make knee-jerk investment decisions, even as the levels of noise and disinformation rise as election day approaches. Langa from AlexForbes encourages investors to remain committed to their financial goals.

None of this is to ignore the many crises that South Africa faces. As Abedian says, “Our many national crises – from loadshedding to the ports and the railways – are opportunities for investors. The money is lined up, and the opportunities are many-fold.” The thing that connects the two is leadership, he adds, looking hopefully toward a year of elections or, at least, to the local one on 29 May.

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