|Now that the initial shock of the Russian invasion of the Ukraine is wearing off, markets are starting to consider the valuations of shares that have come under a lot of pressure lately. The first of the interest rate increases in the USA has also begun and even the Chinese government has said that it wants to stabilize the economy. Optimists would consider the current situation to be the turning point in the bad performances we have seen lately; but would also argue that if China should provide Russia with any kind of support, all bets would be off.
It is not uncommon for shares to go down as much as they have in the USA over the last few weeks, and we often see such years ending with a rebound to positive levels (see accompanying chart). The upside for South Africa during the last couple of months was that Russia had become un-investable and any emerging market fund had to channel their new investments somewhere else. Commodities benefited from the geopolitical tensions and even our bonds are looking attractive, hence the strengthening of the rand.
Investors are never happy to see their equity investments go down 10% or 15% but equities remain a long-term asset class and we have to accept the volatility. If you truly believe in the principles of longer-term investing you have to use these periods to buy into the opportunities they create. In the equity markets the road will never be entirely safe to cross; but if you never take that first step, you will never cross the road. Unless the world comes to an end, your investments will recover over time. If we look at the S&P500 history (see accompanying graph), you will notice that the longer you wait, the better your chances of a positive return.