NDINAVHUSHAVHELO RABALI: Asset allocation requires a clear understanding of uncertainty
Investment decisions with high uncertainty should not dominate a portfolio’s risk
Investment asset allocation is a critical consideration for investors and is challenging to execute. Despite the strong market recovery, partly a result of the rollout of the Covid-19 vaccines, uncertainty remains about the direction of the economy and hence of financial markets as we come out of the fifth global recession since 1950.
Several scenarios can play out. The economy could continue on a steady recovery, with financial markets showing strong and stable returns. The recovery could falter and, like Japan, a period of falling inflation ensues. Alternatively, measures to stimulate the economy could result in higher inflation that continues as an extended period of stagflation. Uncertainty heightens around February each year during the state of the nation address and the budget speech, with millions of experts on fiscal policy emerging. Investors are asking: will SA sustain its expected recovery beyond 2021? Should investors allocate assets away from SA?..