Carel Smith, executive head of retirement funding at Aon South Africa, a risk management company, says global equity market turmoil has made it almost impossible to analyse the fundamentals of listed shares.
“However, certain business sectors have been more volatile than others and have recovered significantly recently.
“Most equity markets have fallen significantly in value in the past 12 months and there is a general feeling of caution and panic when markets react to new information.”
Smith says this leads to risk-aversion appearing to be the desirable approach, and is in sharp contrast to a prudent long term investment strategy.
“It will take a while for the US stimulus to have a stabilising effect on global markets, and economic data is expected to continue to surprise analysts for a while longer.
“However, as policymakers worldwide shift gears to revive growth, some of the panic will subside and we should move back to basics.
“Members of retirement funds have become used to extraordinary growth during the past five years.
“The real challenge over the next few months will be to educate retirement fund members and trustees not to expect the high returns of the past three years in the current environment.
“Economists and fund managers alike are understandably cautious in their comments and investors need to ensure they do not panic and make rash decisions.”
He says the global crisis has shifted the focus to risk aversion. With more volatility expected as fallout filters through, no one can predict the end of the economic slump throughout the major countries over the next 18 or so months.
Smith says that since emerging markets are showing signs of retraction under the strain, and SA's GDP growth is slowing dramatically, this should result in more aggressive interest-rate cuts as inflation pressure slows.
“This year will definitely be underpinned by a cautious approach for investors and fund managers alike but, like most storms, this too will pass.
“The survivors will be those who managed to stay calm amid the current turmoil,” says Smith.
Source: Business Day
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