By Rafiq Taylor, 9 November 2016
During the course of history, and most recently with the Brexit result, we have seen how markets can experience short-term volatility when they react to political, economic and social news. In recent decades, globalisation has resulted in the fact that socio-economic and political events are not just contained within the geographical boundaries of a country, but are felt across the world. Therefore, as predicted, Donald Trump’s victory has sent global markets into turmoil, increasing volatility and resulting in investors retreating to a “risk-off” stance and a general “flight to safety” mentality.
Looking back at the All Share Index over the last 56 years, there have been events that have negatively affected the stock market over short periods of time. The general trend, however, has been an upward one over the long term. It is during these shorter periods of uncertainty that the natural predisposition of investors would be to react immediately and seek safe haven assets and possibly move to cash. The reality, however, is that it is precisely in these moments that investors need to hold firm, remembering their long-term investment goals, as we believe that such events actually create investment opportunities.
If we focus on the All Share Index over the last decade we can see that although the path has not always been smooth, the South African stock market actually produced a return of 8.8% in capital growth and an extra 3.2% supplied by dividends, totalling an annualised return of 12%, implying a return of 6% ahead of current inflation over the longer term. Therefore, once again reiterating that although volatile markets can create levels of uncertainty and can be hard to endure when returns are declining, they also create an opportunity to achieve higher inflation-beating returns, when the markets do turn.
At Sanlam we remain committed to our investment process. We believe that the key is to ensure that our underlying strategies and the fund managers that employ these strategies are able to harness their skills to weather you through these volatile times. At the end of the day, we are remain committed to helping you create longer-term wealth when these opportunities arise.