The big question for many investors ahead of the national election in SA on Wednesday is when confidence will return, according to Victoria Reuvers, director and senior portfolio manager of Morningstar Investment Management.
"While we cannot predict the outcome of what will transpire following the election, the best we can do is to remain disciplined investors focused on valuations and generating long-term real returns for investors," says Reuvers.
"In this context, volatility in market prices should be welcomed. A drop in price can create opportunities for our managers who hold cash to buy assets that are significantly under-priced relative to their long-term fair values, thereby sowing the seeds for future returns."
Patience is key
She says the key is to remain patient and to assess the developments with a rational framework that avoids behavioural impulses and political biases. This remains the most optimal way to create long-term value.
She emphasises that with all matters to do with long-term investing, patience is key. So too, is the knowledge that all the concerns and uncertainties surrounding an uncertain future - currently the national election outcome - is most likely already in the prices of associated assets.
"For example, South African-focused companies have endured a torrid time over the past decade and as a result, their share prices have fallen dramatically," she says.
"At this point in the cycle, there is an enormous amount of pessimism incorporated into their current share prices and therefore, select shares are looking particularly attractive for long-term investors."
Expect market uncertainty
It is a common occurrence that when elections approach market uncertainty increases and this is no different for the 2019 elections, according to Rob Formby, chief operating officer at Allan Gray.
He notes that pre-election jitters knocked the Business Confidence Index in March to its lowest level since August, according to the SA Chamber of Commerce and Industry, with load-shedding, the electricity tariff hike and a slump in manufacturing weighing on the index.
It's important that investors recognise when information is not useful and then tune out of it in order to make better long-term investment decisions, suggests Formby.
Pick the important info
He notes that investors should guard against making changes to their portfolios in response to short-term market noise; rather changes should be made in a considered manner a result of a change in personal circumstance or a revised investment objective.
"Switching funds in a knee-jerk reaction to short-term market conditions can impact your investment success over the long term by locking in losses. This inevitably destroys the value of your investment," he says.
"If you can sit tight and ride out the volatility, you will have a better chance of enjoying long-term returns."
Take calculated bets
Chris Eddy, head of investments at 10X Investments, also cautions that "alarming headlines" ahead of the election can evoke emotional responses that prompt investors to question how their investments, such as our retirement savings, are positioned.
"When it comes to investing, however, it rarely pays to act on news already publicly available – the markets are just too smart for that," he explains. Asset prices – be it shares, bonds, property, currency or commodities – are forward-looking. They reflect all known information, as well as collective expectations and risks (on the up and the down) of all investors.
"To take a calculated bet against the current price of a financial asset, the investor must understand what information is already discounted by the current price," says Eddy.
"The likely outcome of the May 8 elections is that the ANC will stay in power, but with a smaller majority. This has already been discounted by bond, currency and share markets."
Psychologically hard-wired to seek certainty, we tend to struggle with the many unknowns that typically come with a general election. The standard risk-return investment tradeoff can even become skewed by the sheer unpredictability and disproportionate macroeconomic importance placed on the outcome of one single sovereign event, comments Fareeya Adam, head of retail product solutions at Momentum Investments.
"For South African investors, it comes as no surprise that fears over land expropriation, the potential loss of capital and fluctuating global markets are at the forefront of discussions in the days leading up to this year’s national and provincial elections," says Adam.
She says that creating a basket of diverse solutions is currently a top priority for these investors.
Find everything you need to know about the 2019 National and Provincial Government Elections at our News24 Elections site, including the latest news and detailed, interactive maps for how South Africa has voted over the past 3 elections. Make sure your News24 app is updated to access all our elections coverage in one place.