Joy Immelman (Main Author)

South Africa is facing an ominous debt trap, which creates a lot of anxiety about a potential ‘raid’ on formal savings to keep government going.  In response, there has been much speculation in the press and social media platforms about prescribed assets – and in particular – the possibility of amending Regulation 28 of the Pension Funds Act to include provision for investment in infrastructure.  

Around the world, various governments have embarked on quantitative easing (QE), coupled with support programmes to help alleviate the disastrous economic impact of the COVID-19 pandemic. However, QE manifests as support for financial markets, rather than for the ‘real economy’.  Notably, QE is a tool whereby the rich get richer – from rising stock prices – in the hopes that the wealth effect will see them spend money that will trickle down into the real economy. As it stands, the real economy is in dire trouble – and business profits are falling – whilst the global financial economy is in an upswing with a stock market recovery that is in full force.  Equity prices are moving upward.

Financial markets are fuelled by fear and greed. Essentially, greed drives prices up … and fear causes them to fall.   The investor’s emotional cycle:

The global outbreak of coronavirus or Covid-19, coupled with the sharp fall in oil prices, has created immense fear in the global financial markets. These are exogenous shocks which are difficult to anticipate.