Investment choices in times of turmoil

There are two attention-grabbing wars being fought at the moment, with the Israel/Gaza conflict just over a week old. If we put aside our own thoughts about these wars and other major events in history, and just look at the impact they have on our investments, we shall see that most of these events have a negative impact over the shorter term, but even twelve months later this impact has already become minor compared to other influences.

The way our governments manage the economy can be much more damaging to our investments, and the damage can also last longer.

If we look at the United States we see that their debt is reaching epic proportions.

The interesting thing about debt is that it can be good up to a certain point, but like everything in life, too much of a good thing is bad. Another problem in the US is that their mortgage rate is 8.09%, the highest it has been in 23 years.

So, people who want to buy a house now cannot afford it, which forces them to pay higher rental rates. This keeps inflation high, which in turn keeps interest rates high. The upside for the US is that their economy is strong, unemployment is low and the consumer is still liquid. If you are a betting person, do not bet against their getting out of their debt problem.

South Africa, on the other hand, is suffering. Since around 2015, foreigners have been selling our stocks and bonds.

We all know that our unemployment is out of control (60% youth unemployment); our infrastructure is collapsing; and our government is siding with the likes of Russia, Palestine and China. On the positive side, our shares are very cheap with a P/E ratio of 8.8 compared to the world index P/E ratio of 15.4.

It is interesting to note that if you compare the share performance of the biggest emerging economy, China, with that of India, the latter has outperformed over the last three years.

Most investors trust the managers of the funds they invest in to make the right decisions. It is good to see that some fund managers have been increasing the international exposure of their funds over recent years. One of these funds actually have 43% local vs 37% offshore; compared to 70% local vs 13% offshore in 2007.

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