Investing In Turbulent Times

With global markets soaring to new highs, some jittery analysts believe that the bull’s days are numbered. In South Africa, risks also abound, with the ANC’s elective conference looming and another sovereign credit rating downgrade a possibility. So which sectors and economies should investors avoid?

- Marcia Klein

Between sky-high valuations globally, Donald Trump’s unpredictable actions in the US and Jacob Zuma’s disastrous leadership resulting in political and economic crises in South Africa, it is probably fair to say that the rest of 2017 holds significant risk for investors.

Increased risk and heightened uncertainty now come standard with any investment decision, and the ability of fund managers to adapt to these conditions for long-term gain is arguably untested. Many fund managers continue to advise investors to block out the prevailing “noise” and stick to long-term targets. Unfortunately, the outcome of this advice will only be evident in the future.

But despite the turmoil, equity markets remain buoyant and economic growth and corporate earnings, particularly in developed markets, are on the rise.

Sitting in SA, it is hard to see through the noise, which is made all the more deafening by our escalating home-grown challenges, which means any uptick elsewhere is only felt partially. Equities remain relatively robust, but corporate earnings in certain sectors are under unprecedented pressure, and the economy is, well, just about growing.

Global equity markets are up with the S&P 500 reaching record highs in September, driven largely by better economic growth prospects and investor confidence, specifically in fast-growing companies like Facebook and Amazon and the rise of biotech and other disruptive businesses.

The sustained bull run has given rise to skittish investors fearing and anticipating the bursting of what some perceive to be a bubble. The Financial Times, among others, reports that fund managers are hoarding cash and trying to hedge against possible crashes.

It must be said, however, that fear of a crash and increasing share prices have been sitting comfortably side by side for a number of years. Investor confidence has won out, but that does not mean the risks are not formidable.