South Africa’s restrained economic growth, fluctuating rand, rising inflation and the current interest rates cycle are some of the factors which are likely to prolong pressure on local equity investments. This is according to Eric Enslin, CEO of FNB Private Wealth and RMB Private Bank.
“This is a tough cycle and that can be seen in the number of companies which have shed value over a relatively short period, even though some have quickly recovered losses. Even more significant is the fact that various industries continue to predict an even tougher outlook which could see subdued future performance.”
“Currently, a number of investors are possibly evaluating their exposure to equities, but in reality, equities remain one of the best performing asset classes for long-term investors. The long-term view is essential because any ill-considered reaction to short-term share-price movements could lead to losing hard-earned gains,” adds Enslin.
In the short-term, equity investors are likely to pay closer attention to the South African Reserve Bank’s (SARB) last interest rate review for the year. This is due to the unfavourable impact of rising interest rates on equity returns.
In its previous review, the SARB’s Monetary Policy Committee (MPC) opted to keep interest rates unchanged despite cautioning on the impact of the unstable rand and rising inflation.
Some investors might be reassured by the prudent approach of increasing rates by relatively low margins of 0.25%. However, the general state of the SA economy will remain of great concern as more industries could struggle to build any profit momentum, because of a number of factors which do not allow businesses to maintain consistent production, thus restricting revenue and returns.
“The last two years have possibly been the most challenging since the 2008/2009 global recession. Investors will need to remain patient as the rate of returns might not be what they are used to, but we are optimistic that conditions will improve in the long-term. We are encouraging investors to take into account broader market dynamics as opposed to short-term individual stock performance,” concludes Enslin.