The world is changing fast and to keep up you need local knowledge with global context.
While the spread of Covid-19 remains a worry right now, experts give advice of managing your investment amid the coronavirus downturn and beyond. A deeply insightful discussion in the debut instalment of the BizNews Thursday Lunchtime webinar. Alec Hogg spoke to Martin Freeman of Orbvest from New York and Mike Abbott of Sable, from London to add a global flavour to the discussion. The two were joined by locals, Magnus Heystek, Brett Duncan and members of the Biznews community on investing offshore. The experts covered everything from US property to buying international shares and ETFs.
Summary by Stanley Karombo
Many South African investors are asking whether there is any benefit in investing offshore now that the domestic economy seems to be on the upturn.
Magnus Heystek, an investment strategist at Brenthurst, urges South African investors to take their money offshore as worries and anxieties of post coronavirus mount.
Heystek reckons it’s prudent to build wealth offshore. He has been preaching the benefits of applying common sense and stripping out emotion in investing for decades, from the time South Africa started opening its borders so that locals could allocate assets outside the country and when everyone was punting the benefits of global diversification.
According to Heystek, it has been “very wrong to keep all your money in South African assets, in particular Johannesburg stocks.” In a nutshell, your wealth has been wiped out. He said offshore diversification has been his underlying theme in his investment portfolio since 2010.
Investors who did not up their offshore investments exposure in the past few years, Heystek said, did not realise a real value of their investment in rand terms over the last few years. He said the returns of the JSE in the 2014-2019 period were up a paltry 37%, and could not even match its peers in the emerging markets, which averaged an increase of 68%.
Heystek rubbished claims that he was “unpatriotic” because of sentiments on the prudence of offshore investment – saying it was imperative “to build a portfolio that will keep you comfortable in retirement.”
He also claimed that more local money managers in South Africa are advising to rather invest with their heads and not their hearts and consider taking a greater portion of their savings offshore.
Rand hedges given the uncertainty
South Africa’s rand last month tumbled to a more than four-year low. The S&P debt downgrade further exacerbated the currency’s woes, while the government’s stimulus failed to quell the coronavirus -nflicted and already bleeding poor economic growth.
Mike Abbott of Sable said, despite the relative strengthening of the rand versus the US dollar and other major currencies, he does not expect to see a major turning point in the fortunes of the local currency. He predicted a further currency weakness and advised investors to take the opportunity of the relative strength to add offshore portfolios on behalf of clients.
He added that the local currency will not strengthen to the levels it reached three years ago. “The rand will settle at new levels because of this”. The rand lost about 13% against the US dollar in March.
On Friday, the rand gained about 4% against the greenback, despite S&P Global Ratings dropping SA another rung into junk status on Wednesday.
However, Brett Duncan, Head of Retail Equities at Standard Bank Group said investors must not completely right off the South African rand. Although he said the rand is a risk currency, he believes, “the rand will do things that will surprise you.”
Coronavirus will change the way we live, work, and use of technology
Martin Freeman of Orbvest paints a future of drastic change on the way we will live, work and use technology beyond coronavirus. He said the coronavirus has led a quantitative metamorphosis of the workforce to embrace technology – the process would have taken 10 years, but has been shortened.
As the world moves out of the coronavirus pandemic, he believes that there are a number of work habits that are going to permanently change.
Some companies that might have been forced to work remotely because of the coronavirus pandemic, will – after life returns to normal – continue or revert permanently to their old ways of operations, he says.
On trends and disruption of technology in especially the healthcare sector, he says when there is a correction or recession, people would probably want to invest in stable income producing assets such as the healthcare sector.
Giving an example of what is happening in the US, he says that they are moving to virtual consultations online.
Freeman predicts that global 2020 GDP will drop from the pre-Covid 3% growth to minus 3%. Predictably, companies like Netflix and Zoom are seeing stocks soar, (31% and 133%), with retailers doing home deliveries also doing booming business.
The travel industry is in tatters, with countries whose GDP is built on tourism suffering badly. Boeing stock is down by 60% and Exxon’s (the world’s largest non-government energy corporation), is down by 37%.
Abbott says the future is restructured towards technology and health. He, however warns of “overpricing of technology and health stocks.”
Property industry has also been hard hit by this pandemic.
While valuations in most other sectors have tanked, the slice where OrbVest focuses – medical sector properties in the US – is shrugging off a coronavirus- induced economic recession, Freeman says. One place people are going to move to when a recession or correction occurs, it’s going to be the healthcare niche.
South Africa property has not been spared the pandemic. The experts note a bloodbath in the property sector – where property companies like Growthpoint’s share price fell by 55% and Redefine tumbled by 60%. Tenants in South Africa have asked landlords for leniency during a period where they will generate little or no revenue.
In this predicament, what would investors do?
“Sell more of your stock,” says Heystek. But Freeman is more cautious, and says there was no clear answer. He advises a wait-and-see approach for the coming years.
Cryptocurrency is not a ‘safe haven’
The four experts caution investors who may think that cryptocurrencies are a safe haven in the coronavirus-inflicted currency crashes. For a long time the cryptocurrency pundits believed that global market rout does not affect the cryptocurrency, but it seems last week it declined.
Abbott says since the sector was in its infancy stage, “it is too early for investors to venture into” unless and until there are strong regulations.
Freeman weighed in with an example of his friend who is into cryptocurrencies. He says his friend was disappointed by the performance of the cryptocurrencies during the coronavirus pandemic. The crypto advocates thought there would be a dis-correlation between the crypto and traditional currencies, he says. “When the market was in turmoil, the crypto would go up, but it’s currently working in correlation with the market.”
- The Thursday webinars are free and are designed to have the experts to answer the tough questions you’ve been trying to work through. All Biznews community members are welcome, but you do need to register.
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