We are in the last quarter of 2022 and if markets wish to close the year in the green, then something fantastic needs to happen very fast. South African year-on-year inflation dropped slightly from 7,8% in July to 7,6% in August. The South African Reserve Bank has raised its benchmark repo rate by another 75 basis points to 6,25%; i.e. back to levels last seen in early 2020. In August, South Africa posted the smallest trade surplus in seven months and the Nasdaq declined by 10,6% in September – its worst September performance since 2008. Back home we experienced 1950 hours (roughly 81 days) of national loadshedding – double the hours experienced in 2021.
If we take a helicopter view of our current situation, we will see two distinct reasons for all our investment woes. On the one hand we see the economic realities of high inflation and debt levels, causing higher interest rates and having a direct impact on the affordability of money. This might lead to a recession and investors are running for the hills. On the other hand we have a war in the Ukraine which might escalate dramatically if Russia harms any NATO states, bringing nuclear weapons into play.
If you have to choose the more preferable of these two dilemmas, it must surely be the inflation problem. The outcome is more predictable and it will be much better a year from now. The uncertainty of an escalating war in Europe, however, can take us into uncharted territory and cause much more pain and suffering.
It is therefore not unreasonable to consolidate a little and keep your finances and investments close. It is important in times like these not to become despondent. Social media will continue to feed you more of whatever their algorithms determine you are interested in, so once you read and watch negative news and opinions, you will be getting more of that and only that.
We have to be vigilant; but we also have to remain positive. Your investments will always recover when time is on your side.
