These market realities can be rather unsettling for investors as they worry about the performance of their portfolios. Graham Tucker, Old Mutual Balanced Fund Manager at Old Mutual Investment Group, advises investors to remember that investment funds are long-term savings vehicles that rarely deliver significant short-term gains, before making the decision to jump ship. It is about time in the markets not timing the markets.
"While we have been concerned for some time that China's economic growth had to slow, given its previous unsustainably high growth rate, what we have witnessed in the global markets recently is most likely a correction to reflect this slowing growth rate. Corrections, or a 10% fall in the market, are a common feature of equity markets all around the world, with a global average of 10% falls taking place annually. Recently, global markets have been very strong with the US not having had a correction since April 2011, implying that the most recent correction should not have come as such a surprise.
"Whatever the reason for the correction, it is making investors nervous. However, if, like us, your investment manager has been pre-empting this overheated environment, he or she would have cut exposure to equities and built up your portfolio's cash position before the crisis hit.
"Ultimately, the most important thing for investors to remember is that it is situations like these that create opportunities in equity markets. There will always be periods when markets run too hard, but then they give back again. Panicked selling, in particular, is to be avoided, as this will only mean missing the opportunities that are created by falling markets. The only question you should be asking is where and how these opportunities will present themselves."
"It is your fund manager's job to ensure that your investments weather South Africa's changing investment and economic climate and currently, it's not all bad news to work with.
"Now, we are seeing a lot of liquidity in the world - which means easy money - with most countries cutting interest rates in order to drive growth. Markets have responded well to this, but the next step is that we need to see earnings growth from companies as a result. The question that remains is, 'Are South African companies able to offer the earnings growth needed to support market returns'.
"Overall, recent events caused equity markets to fall, but they have already climbed again, making up any losses. However, as a whole equity markets have run quite hard over the last few years, so we have gradually reduced our fund's exposure to this asset class in response to them not delivering the same returns we have seen in the past. Now is the time to be more cautious in the market and with risk rising, we would rather wait this out until a better opportunity to get back in comes along.
"China's growth continues to cause concerns for commodity investors, with lower demand and increasing supply leading to falling commodity prices. Mining companies are struggling, putting pressure on revenue as costs continue to increase, which in turn is putting pressure on stocks. Ultimately, in the face of a continuing demand slump, supply from mining producers needs to be cut in order to help prices recover.
"In addition, the uncertainty surrounding the impact of the Fed rate hikes on global economies and markets is causing prolonged market volatility."
"Considering the current global environment, we prefer global equities over South African equities, as they are offering more opportunities in terms of valuation. Europe and Japan in particular, are offering better valued stocks compared to the US, which does not offer as many growth opportunities.
"In the South African market, we see more market opportunities in non-resource global stocks, which are non-resource South African companies with global operations, such as Naspers and Steinhoff. We prefer companies with good dividends that continue to pay these out, such as banks, as they support the search for yield. However, resource stocks in South Africa are starting to look more interesting, but considering developments in China, we are remaining cautious on this sector and have limited exposure to it.
"Ultimately, investors need to take a long-term view of their assets, putting trust in their fund manager's strategy for attaining the best possible return for their portfolio, even if it doesn't appear that way over the short-term. However, if you have any lingering concerns you should contact your financial advisor to review your portfolio," concludes Tucker.
