While it feels like doom and gloom are abundant, so too are market opportunities, writes Just as we thought Covid-19 was behind us, 2022 bombarded us with an array of new curve balls. From the war in Ukraine, inflation last seen in the 70s, rising interest rates and global markets experiencing drawdowns that rank as one of the worst on record, investors had very little place to hide.
Market returns year to date are terrible and I don’t think anyone is looking at their statement with a smile on their face. However, these performance figures are what is currently visible through our rearview mirror, and not our windshield. What is important is what lies ahead and how we as investors are positioned to recoup losses and generate wealth.Predicting the future is not a skill possessed by investment professionals. We thus pay very little attention to market predictions.
The below graph shows the return of bonds three months before and after a rate hiking cycle ends. As can be seen in this graph, returns on both short-duration and long-duration bonds are negative. However, in the three months after a rate hiking cycle ends, returns for long-duration bonds are especially sizeable.Source: Columbia Threadneedle, Bloomberg. Data as at 31 August 2022.• Long-term bonds are represented by 30-year US treasury bonds.
Tourism, mining and agriculture benefit from a weaker rand. We often view the Rand/Dollar exchange rate as a test for how we feel about South Africa – when the rand is strong, we feel great about the prospect of the country, but when the rand is weak, pessimism tends to sink in. It’s prudent to keep in mind that with every extreme move, someone benefits. The benefits to South Africa include contributing to GDP growth and employment. For every eight tourists, one permanent job is created.
While it feels like doom and gloom are abundant, so too are opportunities. Markets are forward-looking and the reality of the high inflation and interest rates that we are all experiencing is already in the price of portfolios.
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