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By Chantal Marx – Investment Research Head, FNB Wealth and Investments

The global economic backdrop continues to improve gradually but great amounts of uncertainty remain. While most of the major central banks are now likely at the peak of their rate hiking cycles, inflation remains sticky and sustained high levels of interest rates are having a dampening impact on economic growth. Meanwhile, the recovery in China’s economy has been uneven and mixed economic data has made it difficult to interpret to what extent a post-Covid lockdown rebound in the world’s second largest economy will be able to lift the near-term global growth outlook.

Over the next six to 12 months, however, the outlook will likely become clearer. Inflation is expected to subside eventually, and central bank policy easing will become the order of the day. This, in turn, will have positive implications for global growth and by extension, risk assets like bonds and equities. A potential “risk rally” will also be supportive for emerging markets.

In South Africa we still anticipate a meaningful slowdown this year against a backdrop of high interest rates, high unemployment, and network constraints including the well know electricity generation shortfall and logistics constraints. Any medium-term recovery is also expected to be muted on a relative basis. The liberalisation of the energy sector will help, as will potentially changes at Transnet (like meaningful third-party involvement in the countries railways), but it will take some time for this to begin making a meaningful contribution to growth.

The pre-retirement investor

Saving for retirement is a long-term commitment, and unless you are less than five years away from retirement, your asset allocation should be overwhelmingly favoured towards growth assets regardless of the near-term economic outlook. Growth assets include equities (stocks), bonds, and listed property both locally and abroad. Regardless of the issues that at times drag down growth asset prices and induce volatility, the past has shown us that risk asset prices have recovered from every war, plague, and disaster (and then some). Investing in growth assets is the only way to ensure your investments outperform inflation comfortably over time.

It may not feel that way when the world is in turmoil and the future is unclear, but times of uncertainty or disaster are probably the best time to invest. While perfectly timing the market would be optimal, it is nearly impossible and the best course of action in investing during turbulent times is to stick to your strategy and remain diligent in making your contributions.

In the years prior to your retirement, it can make sense to allocate more funds offshore – particularly because the rand is a structurally depreciating currency. This will also provide geographic diversification for your portfolio and allow you to explore asset classes and instruments outside of what is available locally.

The currency can have a major impact on how much alternative currency you can buy with your Rands as well as your returns profile in rand terms. So, depending on where you are planning to retire, you may want to hold off on making major contributions to your offshore investments when the rand is very weak. Conversely, you may want to take advantage of periods of rand strength to add to your offshore investments. However, while the rand is certainly a consideration for lump sum investors, sticking to your regular contributions regardless of the currency will probably yield a similar result as trying to time the currency perfectly.

The post-retirement investor

As a pre-retirement investor it is imperative to remember what your goals are and to think about longer-term trends rather than short-term volatility. It is impossible to perfectly predict the future in the face of geopolitical issues, climate change, AI booms, bubbles, and bursts. But from history we know that risk-asset prices eventually recover from historical low points or periods of uncertainty and over time deliver inflation beating returns. Post retirement, the difficult work of building your wealth has been done and the nature of your investments will be less impacted by market volatility. The secret is now to stick to your spending strategy.

Managing your investments and income against a backdrop of near-term uncertainty both offshore and locally may be challenging, and the temptation to deviate from your long-term strategy is certainly there. But “staying the course” is the single most important investment (and retirement) principle in our view.