Offshore equities, local bonds and shares set scene for strong returns

South African equities and bonds have been trading at such low valuations that many balanced funds are set for solid future performances.

- Pieter Hugo

Following the sharp sell-off across global financial markets induced by the coronavirus pandemic, South African investors are understandably worried about the values of their portfolios. Yet, despite the ongoing market volatility and uncertainty about future economic growth, at Prudential we believe now is a good time to invest in well-diversified balanced funds, especially for longer-term investors looking for inflation-beating returns over time. Even though investors may be reluctant to invest in these funds due to their recent historical underperformance, they should consider embracing them even more.

Our analysis shows that a great deal of bad news has already been priced into our markets, presenting a rare opportunity to invest across different asset classes at very attractive levels simultaneously. SA equities, bonds, and inflation-linked bonds have been trading very cheaply – as has SA listed property (although with much more associated risk). This means that balanced funds have a very good chance of delivering much higher returns than their historic averages, and investors are likely to get the strong returns they need from several different asset classes, lowering total portfolio risk.