How to react to the current incidences of violence in South Africa

Usually, the markets overreact to events such as rioting and unrest. Such incidents often cause discomfort or even panic for some investors and raise serious concerns regarding the impact thereof on their investment portfolios.  To provide guidance on how investors should react to such events, let us look at how the market stomached the recent unfortunate events.

With the onset of the riots on Monday 12 July, the South African Rand reacted first, as can be expected, and at one point weakened by 2.2% against the American Dollar (USD) as investors feared a further escalation of the riots. Other asset classes did not react much, with bond rates moving slightly higher and the JSE actually strengthening by 1.4%. On Tuesday, the riots unfortunately escalated further, and the Rand weakened by a further 1.8%, wiping out virtually all previous currency appreciation we have seen so far this year.  Bonds weakened much more on Tuesday, with significant foreign investors indicating that they would reduce their exposure to South African bonds due to the violence. The JSE also fell by 0.3%, while the listed real estate sector weakened by 2.55% with the news that 4 out of the 11 centres looted were severely damaged. But on Wednesday, the market bounced back again, with the Rand trading stronger, the JSE strengthening by 1.2%, and bonds virtually remaining unchanged.

With the market's reaction on Wednesday, it is evident that most investors are not simply staring blindly at the events in South Africa but view it with the proper perspective of positive events elsewhere in the world. In America, for instance, the S&P 500 Index continues to reach new heights every day and their Federal Reserve Bank has once again reiterated that they would continue to be accommodating in terms of their monetary policy.

We must also remember that almost half of the local stock exchange in South Africa is Rand hedged, and the growth of such shares is much more dependent on foreign growth than what happens within South Africa's borders. Even listed real estate stocks in South Africa have around 30% foreign exposure. In essence, it is essential to know that the value of South African investments not only depends on what is happening there but, to a large extent, on what is happening in the rest of the world, especially the developed economies.

Regarding advice for Namibian investors and their investment portfolios, apart from grasping the context I have outlined above, my advice is firstly not to panic. And this is true for any contingency. I have said before that emotional decisions, including ones made out of panic, are more likely to cause more damage to investment portfolios than the events themselves. Take a step back, see if you have enough liquidity in your portfolio, make sure your portfolio is well-diversified and do not make anxious leaps.

Another serious mistake that many investors tend to make in such times is to try to "time" the market. The notion of moving the funds to safe investments and move them back again as soon as the danger is over is flawed and highly improbable of success. It is much better to leave your well-diversified portfolio unchanged during troubling times and not let your emotions get the better of you. My advice to investors would be to stay informed of events but to act sensibly.  Do not make any drastic adjustments to your portfolio until you have received proper guidance, and make sure your portfolio remains well-diversified. These riots are precisely why investors are investing part of their portfolio in other currencies and economies, and if you have not already done so, now would be a good time.  Our view is that any exchange rate below N$15 per USD is still a good opportunity to relocate an appropriate portion of your investment portfolio abroad.  I would appeal to investors to get expert advice on this and invite them to contact us directly in Windhoek at (061) 2991950.