INVESTING OFFSHORE AFTER THE ROUT

The rand cushioned the blow of the global stock market rout for many local investors. Now the question is how stocks and bonds will emerge from the largest sell-off in a generation.

-  Jaco Visser

When markets tank, and subsequently rebound somewhat, the broad questions investors will ask are what they should have done during the rout and what they should do once it’s run.

The coronavirus pandemic has wreaked havoc across global equity and fixed-income markets, with uncertainty about the future economic fallout only adding to investors’ anxiety. But one global piece of advice from various fund managers rings clear during these tumultuous times: Stick to your initial investment strategy.

Where such a strategy included exposure to offshore assets, whether shares or bonds, the same advice applies.

“The foundation of any investment strategy starts with the right long-term structure based on your time horizon and risk profile,” says Anet Ahern, CEO of PSG Asset Management. “If that was inappropriate to start with, it is much more difficult to navigate the current situation.”

And difficult the current situation is. The MSCI World Index, which tracks 1 643 stocks from 23 developed countries, declined by as much as 31.8% since the beginning of the year before rebounding 24.3% to settle at 15.2% down for the year by the time of writing (see table on p.31).

The MSCI Emerging Markets Index, which constitutes 1 404 stocks from 26 emerging countries, dropped 32% during the initial sell-off since the beginning of the year and subsequently rebounded by 16% for a year-to-date return of -21.1%.

These are, however, general indices and most fund managers follow a bottom-up approach to stock selection. As in any portfolio, it is wise to have some form of protection against extreme market events, such as the current coronavirus pandemic.