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Navigating the Investment Landscape: Lessons Learned from 2022 and Preparing for 2023

Any update, by definition, examines the road to the current situation and is, therefore, historic. An update on markets and the investment landscape is no different. However, clients are interested in establishing the way forward, i.e., what’s going to happen next. On this topic, there is no shortage of commentators willing to give their views!

When it comes to managing clients’ hard-earned money, the best advice is often to focus on the basics. This means not reacting to each piece of headline news and taking into account the long-term goals of clients and investors. At times, this is easier said than done. For instance, 2022 was a challenging year that won’t be remembered fondly for returns on assets generated. Phrases like “no hiding place,” “peak inflation,” and the “Russian invasion of Ukraine” are terms and events that we wouldn’t want to see repeated in history. But like all crises and difficult periods before, they will be mentioned less frequently as time elapses.

The same is true here in South Africa, where Eskom, fragile politics, and public sector corruption were grey clouds that moved from the horizon to directly overhead during the last couple of years. However, when we look at 2022 returns in Rand, SA has emerged relatively unscathed compared to most markets, including the developed ones.

Although the returns of our major benchmark indices underperformed one-year inflation (which was 7.4% last year), they all produced positive returns. There is a lot of debate about investing in offshore markets and whether one should have any investments in SA. Whichever view anyone has on this, measuring returns in Rand is relevant when SA is the country of residence and there is a need to fund expenses. Diversifying assets and spreading risk across geographies and currencies makes perfect sense when seeking returns.

2023 is off to a much better and calmer start than last year. However, we are heading into an environment that has not been seen for a generation. Stubborn inflation and higher interest rates seem set to be around for a while, certainly for the rest of this year at least. But the events of this week have once again served notice that markets don’t sit on their hands, and assumption can be the mother of all evils! The failures of Silicon Valley Bank in the US (and two smaller niche banks) and the rumours around Credit Suisse have led to a sell-off in the sector that does bring a sense of GFC DeJa’Vu. At this point, what we know is that a major shareholder, Saudi National Bank, said yesterday morning that they would not take their equity stake above 9.9% in Credit Suisse. The reason given was that this was a regulatory level that, if exceeded, would complicate the requirements of the shareholder. It seems a perfectly reasonable statement but has been interpreted as a lack of support, which caused panic. Overnight the Swiss National Bank (the Central Bank of Switzerland) said that Credit Suisse’s capital ratios and liquidity levels were all above thresholds set and redefined after the GFC. It also offered backstop funding of 50 billion Swiss Francs. We are in the midst of this event, so there will be further twists, no doubt, but currently evidence suggests that it is not a systemic event like the 2008 crisis was.

In the US, bear markets, as measured by a greater than 20% fall in the S+P 500 index, tend to last for a period of 1-2 years (with an exception being a 2 ½ year period in 2000-2002). We are now one year into this. That is no guarantee that markets won’t fall further, but we can take some sense of relief that we are into the process.

Please get in touch with the WealthStrat team if you have any questions regarding your investments.

Season 2 Episode 1: Part Two

Market Update