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Reporting from the Helm July 2022

Market Update

It’s hard to believe that we are halfway through the year already. And what a first half it has been, with numerous market and economic records being broken, unfortunately, not in a good way. In many ways, this year has felt just as uncertain as the first half of 2020, albeit for slightly different reasons.

February saw the start of the war between Russia and Ukraine, resulting in increased geopolitical tensions. With the war still ongoing, many European countries are left to make alternative plans for the supply of wheat and oil. This year has also brought a rapid increase in the price of oil and energy, which has exacerbated the already increasing inflation.

In an attempt to curb inflation, central banks around the world have hiked interest rates, some of which have been by record increments. We have not been left unscathed in South Africa, having experienced major volatility in our local markets and the Rand. We have also seen loadshedding escalate to new levels, further straining the economy. Believe it or not, our South African market has been somewhat more stable than other global markets, and the Rand’s depreciation has helped cushion some of the blow for local investors.

The result of all of this is that the first half of the year has been recorded as the worst return for global equities in history. To add to this, bonds, which normally experience positive returns in an equity market downturn, have experienced equity-like drawdowns, leaving us with nowhere to hide. With quarterly statements due in just a few days, we are aware that your investment values will not appease you emotionally, and we understand the stress and anxiety that this may cause.

To help make sense of where we are, Morningstar Investment Management’s managing director, Victoria Reuvers, has put together a short video (13 minutes) for our clients. We hope that it gives you some insight into what we are experiencing and what the long-term view is. The reality is that we have been here before, and we will be here again. We constantly need to remind ourselves that investing is a marathon and not a sprint, and now more than ever, it is critical that we stick to our investment strategy and remain invested.

Watch Video

It is often during these uncertain times that it feels like this environment could last a very long time, or we tell ourselves that “this time is different”. But the reality is that every market crash in history has been different, with a different catalyst, length in time, magnitude etc. In a bear market (when equity prices are declining), it feels like a lifetime, but markets spend far more time in a state of positive momentum than they do in a negative. The chart below depicts this well. The blue shading represents the periods over which the S&P 500 was in a bull market (when equity prices are rising), and the red shows the times during which it was in a bear market since 1956. The shaded parts are the periods during which we experienced a recession. You can see that the red portions are far shorter than the blue.

In closing, I recently heard a great saying from Victoria: “you cannot eliminate risk; you can only manage it”. While extremely simple in its meaning, it hits the nail on the head. Please rest assured that our Investment Consultants, our Chartered Investment Committee and our Retiremeant™ Specialists are all working closely together so that we can help you navigate through these worrying times. If you have any questions, please reach out to your RetiremeantTM Specialist.

Warm regards