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Managing your investments through the Crisis

Audio Version

The Coronavirus is an extraordinary global crisis. With any crisis comes panic and uncertainty. History has shown through the world’s previous crises, many of which have claimed millions of victims in different ways, that by and large, the world has recovered back to “normal”.  We believe the world will recover and get back to “normal”, and probably as a better place.

Unknowns about the virus are the major problem, which are stifling the invention of a vaccine for general consumption. Currently, there are many animal and human vaccine trials taking place, but our research suggests a vaccine is only likely to be available by year-end.

Unfortunately, until a vaccine is available to the public, the world will be in limbo, which will require a balancing act between medical and economic survival. Although saving lives is paramount, feeding the population is too. Therefore, the world cannot remain in Lockdown until a vaccine is available.

Lockdown is only buying us time to gear up medical facilities and ramp up mass testing capabilities.

In South Africa, our early lockdown appears to have slowed the initial rapid spread of the virus, however, we will also now need to deal with the economic fallout and the effects on the unemployed. This is truly a testing time for our President, who thankfully, appears to be using credible experts to plan in this critical time of need.

The economic fall-out will be vast with GDP likely to decline anywhere between 5% and 10% this year, which will decimate most company profits and lead to further unemployment well above the current 29%.

The full extent of the economic fall-out is unknown, but SA has been fortunate to be able to slash interest rates by 2.25% this year, lowering the repo rate to 4.25%. This cut will provide some assistance to consumers and businesses, and further interest rate cuts are still possible.

The Rand spiked out to +19 to the US $, driven by normal global crisis fears. The Rand has subsequently recovered slightly to 18.2 to the $ and we expect the Rand to recover further back to below 16 post the Coronavirus crisis.

The Moody’s downgrade was expected by the market and we believe it is positive that the downgrade uncertainty has been removed. Despite the downgrade, SA still has normal lending markets to draw on and doesn’t need to look to the IMF for regular funds. Hopefully the downgrade will support more proactive economic policy change.

The JSE All Share Index declined 35% this year and has subsequently recovered to being down 17% from January. Given the uncertain environment, it’s unlikely a sustained recovery has commenced. We expect market volatility to persist until a vaccine to fight the virus is produced. This may still prevail for the rest of the year. However, we do believe investment markets will recover over the next three years producing positive returns off our highs this year.

We believe that the next few months will be difficult for everyone. But we will prevail, and our investments will recover. The biggest risk is to panic and sell your investments now, cementing in losses.  It is critical to remain patient and participate in an eventual recovery.

Rather consider re-evaluating your financial position by doing a financial plan. There are so many important aspects to managing your finances: having the right tax structure, estate plan, risk profile, investment strategy, enough liquidity, best administrator, personalised service and ongoing expert advice. This should all be combined into a personalised financial plan that we will do for you at Investonline. Click here to see an example of our financial planning process.

As South Africans, let’s look at how we can help each other in this difficult time. Stay safe, this time will pass, and the world will be a better place when we overcome this crisis.

 

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