Market Turbulence March 2020 Invest Team Note

The Money Market

Invest Team Note

There is no doubt that you are being bombarded with news about the conditions of the global economy due to the Corona virus, the local stock market, the rand value and the recent drop in the oil price. We would like to share with you how we intend to approach these events.


Last Friday, Russia unexpectedly stopped their cooperation with the OPEC cartel by refusing to cut oil production. On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April. This caused the OPEC group to cancel their own production cuts in fear of losing out on global market share. The overall impact, as far as oil exporters go, is that the price of oil plummeted to levels close to $30. A positive edge in light of this is that, petrol prices could go down because of the decline in the oil price. Global equity declined further this week, we believe this is for two reasons; one rational, one purely emotional. The other driver of global equity sell-off, is the realisation that the Corona virus will have a larger impact on global growth than previously anticipated. It has impacted China, Euro regions, parts of the US and traces continue. Supply chains have been disrupted globally because of the impact in China. For this reason, equity markets have been selling off quickly across the globe. There is however also a second impact, which is driven more by fear, where investors are selling risky assets even as they become cheaper, which in turn also triggers selling to cover margin requirements, especially in leveraged trades.


The media is injecting the markets with a lot of emotion at present. Media is not what we execute our investment decisions from, as the information they provide is scarce, limited and designed to provoke response. We do not believe that making any decision on this news, is the answer. In each market we are invested in, we are carefully executing and evaluating investment opportunities as they present themselves as fact. When managing investments, our preference is to make decisions based on material fact, while keeping emotions out of the evaluations. In times of uncertainty, people make bold statements in the attempt to bring peace or create fear. Currently, there is an overflow of emotions causing the markets to move, with very little information validating the movements. In behavioural finance this is known as biases. Biases cause us to make decisions from a judgement influenced by perception and emotion, not accurate information. We cannot make short-term decisions brashly, especially inside long-term investment portfolios. No one truly knows with certainty what the Corona virus spread and potential economic impact is. A lot will depend on the effectiveness of global policy responses, like the cutting of global interest rates.


Due to these times, our client’s that are overweight in local equity investments, would have experienced a decline in their portfolio value. The majority of our clients however, are invested in multi-asset and multi-strategy portfolios. These portfolios have higher offshore equity exposure and because of the weakening of the rand, these portfolios were protected and experienced only small draw-downs. Current valuations show that the local equity market is down around -13% and the multi-strategy portfolios protected our clients, coming in at about -3%. We understand the unease, especially for those relying on income draw-downs. We want to assure you, that all of the investment decisions that are being made at this time hold your best interest at heart. When we initially set up each portfolio with our individual clients, they were all designed with unique objectives to your personal needs. We should remind ourselves of our long-term investment objectives and not be thrown by the short-term movements. The markets will always have short-term deviations, as it adjusts to take new economic information into account. The market is also taking peoples emotions into account, as they buy and sell because of fear. Market volatility, both up and down, is normal. Now is certainly not the right time to flee to the safety of short-term investment solutions. We have all seen how much the markets can move, even in a day.

We stand by our strategic views. They are designed to ride the tides of the market cycles. Each investment portfolio is designed to generate returns at different stages of economic and market cycles. We will not be selling our growth assets, because they are cheaper now more than before and are currently mispriced because of emotion. We will also not be increasing protection assets, because at this time they are expensive and are also mispriced because of emotion. We are focusing on holding correct positions within our strategies, evaluated by data analytics, expertise and factual information. Markets recover, we have seen it throughout time. Sometimes they recover quickly, sometimes slowly, but risk-return over time has proven to average to normality. In times of uncertainty, we need to not be double-minded or else we will be like a wave at sea, swept up by the current and tossed back-and-forth.
With us, it is all about the journey, even when it starts to get cloudy. We ride-the-tides with you.

Should you have any questions or concerns, please feel free to contact us.

-Kheara Kroggel

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