Shaun le Roux from PSG Asset Management advises investors to keep calm amidst the chaos. (The following is an abridged version of an article from Moneyweb).
For South African investors, the headline news at the moment is almost universally bad. Politically and economically, the country is facing very challenging times.
These difficulties aren’t limited to South Africa, either. Global economic growth is still tepid and geopolitical tension is high. (Reacting to global crises has been covered before on this blog.)
“It’s very much at the top of everyone’s mind that there are very high levels of uncertainty both on the political and macro economic fronts,” says the manager of the PSG Equity Fund, Shaun le Roux. “As far as politics is concerned we have what’s going on inside the ANC, a very divisive US election, and Brexit and its consequences. On the macro economic side, there are big questions around the South African economy, which is going through a very tough patch and may be looking at a recession.”
Of these, the local political landscape is perhaps the most concerning. However, le Roux says that while the stakes are high and the outcomes unpredictable, investors shouldn’t make hasty decisions based on ‘noise’ alone.
“What one needs to bear in mind is that when a story is dominating all the newspaper headlines the market knows about it and the market tends to be quite efficient at pricing in bad news,” he argues. “In this regard our analysis shows that something like a sovereign debt downgrade is pretty much priced in by the market already.”
Although there could still be a crisis caused by a successful attack on the integrity of the Treasury and the Reserve Bank, this is not PSG’s base case. Nevertheless, it’s important to be diversified to protect against even the worst possible scenario.
“The main point that we try to make to clients is that when the world is this uncertain and the range of outcomes is this wide, we think you gain very little by trying to forecast exactly what is going to happen,” Le Roux says. “Brexit is the best example of how futile this can be.”
This approach requires taking a long-term view and seeing opportunities beyond the market buzz.
“When there is this much uncertainty and fear, we typically find that the market will give you some good opportunities,” says Le Roux. “But you need to be able to take a long-term view backed up by a long-term process.”
“We think it’s time for clear heads,” he adds. “It’s very noisy at the moment and when it’s this noisy, people do have a tendency to allow the headlines to throw them off course as far as their long-term investment objectives are concerned. But you need to think in an unemotional way about what you are trying to achieve from a return perspective and make sure you’re not taking on too much risk to achieve that.”