Where do we go from here

Where do we go from here?
This isn’t where we intended to be
We had it all, you believed in me
I believed in you

Certainties disappear
What do we do for our dream to survive?
How do we keep all our passions alive,
As we used to do?

Who could have imagined Madonna being such voyeur for the equity markets! The lyrics above are to the song “You Must Love Me”, from the Evita soundtrack. They could very well have been written by the world equity market indexes to investors!

The mood in the markets right now is neither bullish nor bearish just befuddled. The unknown is causing investors much worry. Trying to predict the thought processes of the investment herd, deciding what bets are popular and which themes to follow is a constant source of frustration and consternation for investors. Research is showing a consensus view of confusion rather than conviction.

And who can blame investors and asset managers? The S&P500 experienced the fastest 30% drop in history, with an unprecedented shutdown of global economic activity. And then from extremely oversold conditions, stocks snapped back in the fastest 35% rally in more than 80 years, regaining 60% of the decline but still without much support from improving real-time economic indicators.


First it was Asia, then Europe and now even the US is resuming normal economic and social activities. This is good news is the pressure on the economy is easing. Unfortunately, it is also unlocking some of the conflicts that took a backseat during the shutdown. After playing the blame game in the past weeks, the US-China conflict moved back into the trade and technology battleground. First, the US pondered its financial investments in China, then, over the weekend, imposed a ban on tech companies again. In addition to the economic fallout social conflicts are also boiling up again, with many protesting against ongoing lockdown measures across the globe. And to top it all off fears of a second wave of infections looms large, as some hot spots flare up again. If this happens across the globe then all bets are off in terms of a sustainable  market recovery.

Global GDP and manufacturing activity is expected to decline substantially in the second quarter and activity in a number of service and manufacturing sectors will fall to unrecognizably low levels. Yet the world still turns, as central banks confirmed their all-in stance. At the annual meeting of China’s National People’s Congress this week, policymakers are expected to show their continued support for the real economy with a massive stimulus. In the US, Federal Reserve Chairman Jerome Powell reaffirmed that the central bank is not out of ammunition by a “long shot” and that he was prepared to act when necessary.

All of abovementioned factors will form the houseview mix as to how the future will play out for equity markets. Should good news be received as pertaining to a vaccine, positive sentiment will prevail. Should bad news concerning a second or third wave of Covid-19 be the prognosis, negative sentiment will prevail.

While it may be hard to shake off the lockdown syndrome, investors should start to reassess their investment strategies. Any consolidation and/or correction is the time to consider inflation beating growth assets instead of unproductive assets like cash and gold. We recommend a solid focus on sectors that will benefit from the “new normal”  way of life. It is time to think about the day after tomorrow instead of being afraid of the crisis fallout. The wise words of Warren Buffett come to mind, “invest when others are fearful”.

South Africa sits with a far more complex scenario than most first world economies. The full effect or peak of Covid-19 is still to come. The effect on the economy and GDP will be devastating. The SOE debt crisis has not gone away and as a result of the Moody downgrade, future government debt is going to be more expensive. We forecast very muted propsects for listed companies exposed primarily to SA. Most asset managers are predicting “fixed income” as the asset class to deliver the best risk adjusted returns over the short to medium term for SA restricted portfolios.

In conclusion, we are recommending that investors that are already invested in the market stick to their strategy and not panic. Investors must ensure their advisors realign their  portfolios to ensure optimal positioning in line with the new normal.

In these volatile and testing times, the value of true advice cannot be underestimated. Make sure that your advisor is stepping up to the plate. A fully engaged and committed advisor will ensure your dreams endure and you are able to keep your vision and passions alive.