Reshuffle, downgrades could be insignificant long-term - expert

Johannesburg - The current local market performance following recent political and economic events might not even feature as a significant event on a long-term graph, according to Graham Tucker, Old Mutual Balanced Fund manager.

"While we could face a significantly volatile time in the short term, with potentially divergent outcomes, volatility may create opportunity within a mispriced market,” he said at the launch of the annual Long-term Perspectives publication. It is a summary of long-term asset class data compiled by Old Mutual Investment Group’s MacroSolutions boutique.  

When it comes to investments, sometimes bad news can become good news and one should be investing in exactly the opposite way to your initial gut reaction, according to Tucker.

"Past and recent political events have taught us this,” he explained.

READ: Downgrades, politics could trip up recent economic gains

In his view, South Africa’s recent sovereign rating downgrades to sub-investment grade or "junk" status highlights the crossroads the country finds itself at.

"At this point it is hard to predict the direction we will end up taking," said Tucker. "The resultant market volatility is going to exist for some time to come, and in such times of uncertainty it is crucial to take a long-term view and be well diversified."

He pointed out that when President Jacob Zuma fired former finance minister Nhlanhla Nene in December 2015, markets fell sharply over the next few days. The rand depreciated 9%, bonds fell by 10%, listed property by 14% and within equities, banks fell by 19%.

"Importantly, however, investors who remained invested in these assets have since retraced and recouped these losses and more,” he added.

Local equity market

Tucker believes the local equity market could deliver better returns going forward, although it is not possible to say when that will happen.

“Short-term movements are extremely difficult to forecast as they are driven more by sentiment than fundamentals. However, given that the global economic environment is improving, the recent period of low or no returns from equities has allowed the market to regain some value,” he explained.

To him the Long-term Perspectives data illustrates the critical need for patience as an investor.

“Financial freedom isn’t achieved overnight and the old adage holds true that its time in the market, not timing the markets, that counts. Ultimately, sentiment drives shorter term market movements and investment fundamentals need time in order to play out,” he explained.

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