On the 26th of March, we celebrated one year of lockdown.
My daughter was born on a JSE black Monday, 9th of March 2020, the All Share fell by more than 6%. Luckily I was blessed with a healthy child and the ability not to answer my phone from upset clients.
We (myself and the clients) had a few sleepless nights through the year but luckily we did not panick and hold our positions. Now more than a year later the market is running like my daughter and is up more than 35%.
Now that we are settled in the “new normal” of lockdowns, remote work and smaller social groups, I start to wonder how this New Normal will affect our investments going forward.
A few trends we continually looking at are as follows:
The world is busy with one of the greatest experiments in the history with record fiscal and monetary stimulus to boost the economy.
All countries are at record high debt levels and there seems to be no stopping it, with extra stimulus coming from USA and every country that promises vaccines for all.
This easy money stimulates the investment markets for the time being, but somewhere in the future the debt needs to be repaid.
Will there be enough growth to grow out of the debt or will taxes need to be increased?
Even though the infection rates are still high all over the world, the world economy is already beginning to recover.
The financial markets, that are always forward looking, expected the recovery and are again and record highs.
The good news is that inflation is not an imminent threat and therefor interest rates will be kept low for the foreseeable future to help the economies get back to their feet.
The biggest challenges are the valuations of the global equity markets.
A lot of good news have already been priced in the market and the future growth of equities might not be at the same level as during the last 10 years.
Because of the weak local economic growth and the lack of business confidence, the South African assets are trading at a high risk premium, therefor at cheaper valuations against our global peers.
If the world economy continues to grow it would boost the prices of commodities and hence emerging markets and South Africa will continue to benefit.
Cash is trash at the present interest rates. After 5 years of very good returns with very low risk, the present low interest rates will hamper the future growth of investments in the money markets.
Who will struggle in the new normal?
During the lockdown, we got used to the idea that you don’t have to go to the office or the mall.
You can easily stay at home and use Zoom and UberEATS to satisfy the needs that you normally have to go out for.
Listed Property will suffer in this new normal and therefor suffered huge drawdowns.
The airlines and hospitality industry saw huge losses of income. Did people realise that they don’t have to have all those expenses?
The question is – will we ever go back to the way of living that we were used to before the pandemic?
Beneficiaries of the new normal
There are companies that will gain from a post covid-19 world.
Digital banking is gaining traction. There won’t be such a big need for bank branches in the future and will lead to cost savings.
Telecommunications and technology companies will play a bigger role in the new era.
We are indeed living in interesting times and the world is changing daily.
Processes and Investments that were winners 5 years ago might not survive during the next 5 years.
If it is the Old Normal or the New Normal going forward, one thing is for sure, there will always be opportunity.
Let us know if you have any questions.
PJ Botha CA(SA), CFP ®