During 2021 investments worldwide were cruising down the highway with the wind in its hair, having a good time. Then, during the latter part of the year rumours of higher than expected US inflation caused a dense fog to descend over the highway and investments had to slow down. As investments sped into 2022, the fog thickened with rumours of a possible invasion of the Ukraine by Russia and investments had to slam on the brakes as a horrific traffic jam blocked its way. So this is where we are today. Investments are having a stop-start journey and we all know the frustration of sitting in a traffic jam, not knowing how long it will take to clear and exactly what the problem is.
So, as investors, we have a choice: become all excited and angry, or even fearful, and sell; or accept the situation and use it as an opportunity to evaluate our positions. If you have time on your side owing to the cash you set aside during the sunny days, you can wait it out, knowing that although it is going to take your investments some time to get moving again, it will happen and you will get to your destination. This may even offer you an opportunity to convert some excess cash into equities, perhaps use the stronger rand to buy into cheaper offshore equity funds. But getting out of your investments now and walking away will not be a good idea.
To gain some perspective we can look at some figures. The JSE All Share is up 3.3% year to date owing to stronger resources and banks. Over a 2-year period, from just before the pandemic, it is up 2%. So the JSE has basically remained flat over the last two years. The S&P500 is down 8% year to date, mainly due to the expensive technology sector, but it is up 31% over the last two years. The rand is flat against the US$ over the last two years. As an investor, you may have lost most of your 2021 growth if you were heavily invested in technology or biotech companies in the USA, but you are still holding on to your SA gains.
For now, we do not know what will happen between Russia and the Ukraine. If you look at the accompanying graph, you will see the potential impact a war and sanctions can have on various commodities. We also do not know how many times the USA will hike interest rates, or whether China will mirror the Russian aggression and invade Taiwan. So things may get worse over the shorter term – or they may get better. Investing is a long-term game and profitable international companies, providing goods or services we all depend on, will recover and be stronger a few years from now; so rather buy more at this discount than sell at a loss.
