Top considerations for SA investors under the ‘new normal’
SA’s economy has been caught in a low-growth trap over the past 10 years
The tale of global markets in 2020 has been one of uncertainty. While investors have endured various bouts of market volatility in the past, including the crash of 2008/2009, they have never witnessed the sudden and dramatic shifts that we have seen over the past eight months.
Covid-19 and the resultant lockdowns brought global economies to a standstill in March, which triggered the fastest 30% drop in global equity markets since the 1920s. In April, we watched the oil price trade at the lowest level recorded in history. Markets rebounded in May and June as economies reopened after the peak of Covid-19 infections in Europe, but investors have continued to tread with caution, prompted by uncertainties and doubt.
The third quarter of this year has produced more stable markets but it will still take a patient and diversified investment approach to avoid moves that could erode long-term wealth creation.
SA economy recovery will take time
The SA economy has been caught in a low-growth trap over the past 10 years, which has been worsened by the Covid-19 crisis. The country’s GDP fell by a huge 51% in the second quarter of 2020, revealing the impact of Covid-19 containment measures on the economy. SA’s GDP per capita growth has also remained at negative levels over the past five years.
President Cyril Ramaphosa is confident that the stimulus plan and other initiatives can revive the economy, but the implementation of the plan remains a big concern. Investors will also only feel the full impact of rate cuts in 2021. There is robust debate about the shape of the recovery and while the fourth quarter is expected to reflect a rebound, this may not be sustained for a prolonged period.
On a positive note, SA is benefiting from agriculture production and prices, which have proved resilient, and after a strong planting season, the 2021 outlook looks robust. However, investment spend and employment in the corporate sector are crucial to driving growth, and it may be difficult for businesses to participate in the recovery after being forced to take on debt to survive the crisis. The country also continues to battle significant structural and confidence issues.
Investment opportunities locally and globally
SA nominal government bonds appear to be an attractive long-term investment opportunity. We expect this core asset class to provide investors with an inflation-beating return that they will battle to find elsewhere in the current environment. If the SA Reserve Bank and National Treasury can keep inflation under control and stabilise the debt outlook, it will make for an attractive bond-buying environment.
In the local equity market, domestic-orientated businesses such as banks and retailers are trading at depressed levels and appear undervalued. The ability to unlock higher value is, however, dependent on whether economic recovery is in line with the president’s expectations.
There are many reasons local investors should be investing wealth offshore. SA makes up less than 1% of global GDP and market cap, which means that there are many opportunities for investors outside the country. High-growth sectors such as health care and technology are simply not available to investors in the local environment.
International markets are by no means cheap. However, when taking a longer-term view, it is critical for investors to consider investing offshore and possibly increasing their allocations if they are already invested in international markets. Given the turmoil experienced in the local market, taking money offshore will always be a hedge for SA investors.
Investment solutions offered by Africa’s largest banking group
Standard Bank offers a broad range of investment capabilities provided through various outcome-orientated strategies to investors across the globe. In addition to bank investment solutions, the group leverages the solutions, experience and expertise of its investment management businesses such as Melville Douglas, Liberty, Stanlib, Stanbic IBTC Pension Fund Administration and Stanbic IBTC Asset Management (Nigeria).
Standard Bank’s depth and breadth of investment capabilities and offerings provide clients with access to a comprehensive range of world-class solutions across multiple asset classes and geographies.
Melville Douglas, the bank’s boutique high-net-worth asset management firm, offers discretionary and advisory investment management in SA and internationally, out of Jersey, Channel Islands. Melville Douglas was recognised by Morningstar as SA’s Best Global Equity Fund for 2019.
Standard Bank’s offering is further enhanced by its African footprint; Stanlib has a presence in eight countries on the continent outside SA, while Stanbic Ghana has the second-largest in-country asset manager. In Nigeria, we have the largest pension and asset management business in Sub-Saharan Africa outside SA.
Liberty and Stanlib enable us to deliver a further range of institutional and retail investment offerings, including retirement solutions through multiple tax-efficient structures and life wrappers to bring the most tax-efficient solutions to our clients.
On the non-active asset management side, Standard Bank, Stanlib and Liberty collaborated to launch 1nvest, a specialist provider of index tracking funds. Geared specifically to provide simple, transparent and cost-effective passive investment products. 1nvest specialises in both passive unit trusts and exchange traded funds (ETFs).
Its offerings have won industry recognition, the 1nvest Rhodium ETF won the 2020 SA Listed Tracker Funds Awards for the best total investment return over three years, while the 1nvest Top 40 ETF was recognised for its tracking efficiency over a three-year year period.
Finally, the digital self-investment platform, Standard Bank Online Share Trading, has both a domestic and global capability.
The platform has been strengthened and adapted over the years and this earned it the Intellidex award of SA’s top stockbroker in 2020 for the sixth time since the inception of the awards in 2010.
Building on our digital capabilities, the My360 app provides clients with a consolidated view of their net wealth across more than 20,000 global financial institutions on a single dashboard. The ability to instantly shift between onshore and offshore asset allocation will allow clients to conveniently track the growth of their assets and liabilities daily, allowing for more informed decision-making.
My360 has recently incorporated the “Save and Invest” feature, which clients can use to set personalised financial goals. My360 uses an intuitive process to render investment solutions that suit each clients’ specific situation. The investment into any of the GoalStandard Funds is made directly through the app — no paperwork needed. Clients can therefore seamlessly invest in our funds in a straight-through process and track the performance of the fund against their goals on the goal-tracking dashboard.
These solutions are augmented by world class, holistic advice, which is provided through our financial consultancy arm, wealth and investment business unit and international and African advisory teams. Our expert advisers equip clients with knowledge to make decisions that add value throughout their various life stages, supporting objectives and goals to secure their future financial position.
This article was paid for by Standard Bank.
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