Sometimes we have to get a feel for the general and not the detail when it comes to investment decisions. This is sometimes referred to as the “trend” and it is usually your friend. Look at it this way: you go on a hike, a drive, or some other group activity where everybody is seemingly doing the same thing, but they all notice different elements along the way.
While you are walking in the veld, one person will see a tortoise next to the path that you may miss, but you see a dassie on a rock that nobody else does. Then, later, when you discuss the hike and get all the various impressions, you suddenly realize that the experience had much more to offer than only your perception. The same thing happens with regard to investments, which is one of the reasons why you have to invest in more than one fund manager’s fund.
The investment world is currently in a transition phase, with a lot of confusion as to which path to follow. Chinese leaders are going overboard on regulatory intervention, claiming that they are doing it for the common good, but it is starting to smell like political powerplay. The USA is blowing hot and cold and just when we thought the reopening of trade was on its way, the Covid Delta variant slammed the door shut. In South Africa we thought a high-profile criminal would at last serve some well-deserved jail time, only to hear that the medical parole card has been played again. And so it goes on and it always will. It is very natural for people to get fixated on one aspect of life which is of personal importance to them, but that is exactly why we have to open ourselves up to other, different opinions.
Currently it feels like a balanced investment approach in South African assets is the way to go. Bonds offer a good yield and interest rates will be slow to rise. The valuations of some of our locally-focused companies are fair and even our property companies are recovering. Commodities have come down a lot and may start offering value again soon, and even the rand traded at relatively strong levels up until a week ago.
Our international investments will be a little more difficult to pick. If you look at the graph below you will see where the money has been made so far this year. The general feel is that companies in the hospitality and leisure industry offer good value, but big tech growth companies not so much. Banks in the USA should benefit when interest rates start to rise, probably towards the end of 2022. The general consensus is also that a shallow correction in the US equity market is imminent and that should provide a favourable entry point for longer-term investors.
