SA is bouncing back but still far behind the USA

One of the biggest mistakes an investor can make, is to “wait for the correction”. When the equity markets are going up it is psychologically very difficult to invest more money because the belief is there that there will be a correction and the price of the share you want to invest in will come down. The problem is that the share might go up even further before it comes down, and then it comes down less than it went up. This is the typical two-steps-forward, one-step-back scenario. The hesitant potential investor never gets a lower entry point and before long the price is out of reach.

We have seen this phenomenon playing out for South African investors over the past five years regarding international investments. Currently we are seeing the headlines in the newspapers saying “Rand rally impressive as it tops a 2-year high”; and “JSE outpacing its international peers”. This state of recovery is very welcome and we are very glad that SA is finally getting some investor recognition, but what does your investment portfolio say? If we look at the 3-year figures, we see that the S&P500 is up 56%; add to that the rand/dollar weakening of 8% and you get to a rand return of 64% for investing on the S&P500 over the past three years. Compare that to an 18% return on the JSE. If we take the 5-year figures we see the S&P500 up 100% and the rand 11% stronger over that period; so we get a rand return on the S&P500 of 89%. Compare that to a 22% return on the JSE.

It is very clear that the best equity investment over the last three and five years – regardless of the currency movement – was the S&P500. So now we have to decide on where to invest from here. The rand is 21% stronger against the dollar than it was one year ago, will it continue? The JSE is 34% higher than a year ago, is it time to take profits? The S&P500 is 39% higher than it was a year ago, same question. There are many reasons why we should be cautious about the level of equity markets and the main one is rising interest rates. With all the liquidity in the markets inflation is a certainty and governments will have to raise interest rates at some point, which is bad for shares in principle. But what if shares go up a further 10% before they come down 8% when interest rates are eventually raised?

The only advice we can give, is to not try timing the markets. Formulate your investment plan based on your personal set of circumstances and implement it. The term “analysis paralysis” should not become your reality.

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