Investment markets are complicated, but you can still make money

The lower the prices, the more fearful we are and the less we want to hold stocks and other investments in the financial markets. But it can mean missing an opportunity when the market turns, writes Laura du Preez.

Falling markets, glaring headlines and plummeting investment values. This is another market crisis designed to destabilize unsophisticated investors.

Investment managers speaking at the recent investment forum said it will be difficult to navigate the markets ahead, but there are opportunities they believe will reward investors who, despite their fears , remain invested for the long term.

The Investment Forum, organized by the Collaborative Exchange, is held annually in Cape Town and Johannesburg.

Uncertain times = volatility

The global economy has changed dramatically over the past four months with Russia’s invasion of Ukraine, high oil prices, an overheating US economy and China’s zero-Covid-19 strategy slowing growth economy of this country, said Kevin Lings, chief economist at Stanlib. the Investment Forum.

Lings said the United States, facing 8% inflation, needed to use interest rates to slow its economy, jobs and housing market. But it is difficult to manage because the effects of a rise in interest rates delay the rise.

If the Federal Reserve gets it wrong, the US economy will go into recession, Lings says.

And financial markets — which typically price future events — aren’t priced for a recession in the United States, Lings says. The United States accounts for 60% of global stock markets.

Uncertainty about how events in the United States and elsewhere might unfold has increased volatility, Lings says. Don’t expect markets to stabilize quickly as investors, including asset managers, try to figure out how the rate hike will unfold.

Agreeing with Lings that the current investment environment is very uncertain, Allan Gray portfolio manager Sean Munsie told the conference that markets don’t handle uncertainty well and that’s why they performed poorly at the course of the year to date.

A crisis with opportunities

Coronation’s chief investment officer, Karl Leinberger, described the current situation as a “real crisis”, but urged investors to consider four more crises over the past 25 years.

In 1998 there was the emerging markets crisis, in the early 2000s the tech stock crash made worse by 9/11, in 2008 the Great Financial Crisis and in 2020 the Covid pandemic crisis, Leinberger said. .

In all of these crises, there have been dramatic and painful declines in the markets that have left us “scared and grumpy”, he says.

The lower the prices, the more fearful we are and the less we want to hold stocks and other investments in the financial markets, he says.

Our brains are wired to survive now, not to think long term. As a result, few people stay invested in the market or take the opportunity to buy more when assets are priced low. But in doing so, they miss the opportunity when the market turns, says Leinberger.

Timing the markets is incredibly difficult – to divest when times are bad and reinvest when times are good. Indeed, markets are always looking ahead, always turning when least expected, and always on the cutting edge of news, he says.

Every crisis is also different – and there’s always reason to think more bad news is coming, he adds.

When the Great Financial Crisis happened in 2008, all the papers told you was the end of the world and that we were ready for a decade of recession like the one that started in 1929. Instead, the markets have recovered in two years, says Leinberger.

In 2020, stock prices fell on pandemic news, especially as scientists said vaccines were years away. The outlook looked dire, but the markets turned around a few months later, he says.

While waiting for the next turn in the market, you should invest with an active manager who can identify where there is a dislocation between market prices and what investments are really worth, says Leinberger.

In these times, market pricing is not efficient and you need investments and asset allocation to be actively managed, he says.

Easy money was won

Echoing Leinberger’s sentiments, Munsie said that over the past six or seven years passively managed or index investing has been a good strategy. Investors who follow size-weighted indexes invest in past winners and those stocks continued to do well until recently, he says.

The six big global tech stocks have done most of the heavy lifting in global equity markets, leading to a high concentration of these stocks in US markets – levels of concentration not seen since the dotcom bubble of the early 1990s. 2000, he says.

But recently, things have gotten “more interesting” and prices for big tech stocks have fallen.

However, being cheaper has not made them all good investments. These companies, along with other large companies, face wage increases well in excess of the high rate of inflation, which could put significant pressure on their margins, Munsie said.

Asset managers may research which companies will succeed under current conditions and their opinions may differ, but managers at the conference largely agreed that not all companies will succeed in the years to come.

Clyde Rossouw, manager of Ninety One’s Global Franchise Fund, warned investors about missing nuances in an incredibly complex world.

He believes a shift of investment capital from tech stocks to energy stocks is complete and cautioned against taking simple views like that energy stocks will do well when China recovers. The situation was more complex than that, he said.

Likewise, he says quality stocks will do well, but you shouldn’t expect a repeat of the times when all growth stocks do well.

The market won’t go back to chasing growth stocks because the cost of capital has changed, he says.

You have to look for better opportunities and that set of opportunities is wide and growing, says Rossouw.

Given that the world is likely to remain complicated, it will be more important than ever to bring in managers who can pick the stocks of companies with resilient earnings and strong free cash flow, he says.

Bullish in the local market

Good fund managers can also identify markets around the world that can generate higher returns, especially for South African investors, if they want to invest more globally or locally.

Munsie told the conference that local stock prices relative to global prices are at levels they were in the early 2000s, indicating that over the next decade local stocks could offer better returns than world markets.

We are finding great stocks locally, says Munsie.

Leinberger says Coronation also favors local equities and has never been more bullish with near the maximum 75% allocation to SA stocks in its high-equity multi-asset fund.

Keep investing

The past decade has been peaceful and prosperous, but we don’t know if the decades to come will be the same, especially as “increasingly fragile societies and economies” face rising political tensions, rising interest, social upheaval due to climate change, social inequality and economic populism, says Leinberger.

But investors can take advantage of real-world crises by taking a long view and profiting from mispriced assets, he says.

This long-term view should be backed up by thorough research, however, and the price you pay for investing should always come before the time, he concludes.

This article first appeared on, an initiative of the Association for Savings and Investment South Africa (ASIS).

Get the biggest business stories sent by e-mail every day of the week.

Go to the Front page of Fin24.