Uncertainty has long been an inherent aspect of investing, and today’s SA investors confront a particularly intricate landscape. Domestically, challenges abound: sluggish economic growth, strained public finances, persistent uncertainty surrounding load-shedding, crumbling infrastructure, and a shrinking pool of stocks available for investment on the local market.
Globally, China’s slowdown threatens SA’s commodity exports, while strained US relations and potential trade wars add uncertainty. Geopolitical tension, particularly between China and Taiwan, further cloud the outlook. Meanwhile, the overvalued US stock market shows signs of fragility. The critical question for SA investors is how to strategically position their portfolios to weather the next inevitable disruption.
We’ll examine five major market downturns — the 1973-1974 oil crisis, 1987 black Monday, the 2000-2002 dotcom bust, the 2008 global financial crisis and the 2020 Covid crash. Each downturn had unique causes, but clear patterns emerge when analysing which sectors and asset classes performed worst and which protected investors.
The 1973-1974 oil crisis
The 1973-1974 oil crisis had a global impact, though its effects varied. In the US, the S&P 500 plunged 48%, with high-growth stocks, financials and consumer discretionary sectors hit hardest by stagflation and rising interest rates. The UK suffered even steeper losses as the FT30 index lost 73%, driven by soaring inflation and a real estate crisis. In SA, the JSE mirrored global equity declines, but gold mining stocks surged, mitigating losses.
During this crisis, a well-positioned SA portfolio focused on gold mining and commodities to benefit from rising prices, alongside defensive equities. Holding cash and short-term bonds preserved capital amid high interest rates, while reducing exposure to cyclical stocks minimised losses from global declines.
The 1987 black Monday crash
The 1987 black Monday crash resulted in global equities plummeting 20%-40% in a single day amid panic selling and liquidity shortages, with government bonds providing a safe haven as all-equity portfolios faced prolonged recovery, while balanced 60-40 stock-bond allocations rebounded within roughly a year. A resilient SA portfolio combined local and offshore bonds, defensive equities, gold and liquid assets for quicker recovery.
The 2000-2002 dotcom bust
The 2000-2002 dotcom bust resulted in the Nasdaq dropping 78% and the S&P500 falling 49% in dollar terms, erasing speculative tech investments and dragging down growth stocks and venture capital. Bonds and real estate investment trusts (Reits) protected investors, allowing diversified portfolios with value stocks and fixed income to recover sooner.
The rand’s sharp 2001 depreciation made offshore bonds and dollar cash essential for limiting losses, while gold and commodities boosted rand returns. A well-diversified portfolio was crucial, as tech-focused investors suffered heavy losses.
The 2008-09 global financial crisis
During the 2008-09 global financial crisis US equities plunged, with the S&P500 down 56.8% and the Dow Jones falling 54% in dollar terms, while global equities mirrored these losses. In SA the JSE all share index mirrored these global trends.
SA investors who held global hard currency cash and investment-grade bonds gained up to 40% in rand terms during this period. These assets provided stability as equities and high-yield corporate debt collapsed, while gold and commodities helped hedge losses. A portfolio with offshore bonds and liquid dollar-denominated assets would have offered the most resilience.
The 2020 Covid-19 pandemic
The 2020 Covid-19 pandemic sparked intense market volatility, with energy, travel and financial sectors facing steep declines, though global markets, including the S&P500, rebounded swiftly by year-end. SA investors who stayed calm saw portfolios recover quickly, with the JSE all share index buoyed by a commodity price surge, highlighting the resilience of local equities despite rand fluctuations.
Lessons learnt
From these historical market crashes, we learn that a well-diversified investment portfolio reduces risk, smooths out volatility and accelerates recovery. Here’s how investors can protect their portfolios:
- Diversify across asset classes. A blend of equities, bonds, property and cash provides a good level of protection in your portfolio.
- Diversify geographically. Offshore holdings in hard currencies, including equities and bonds, shield against rand depreciation and JSE’s sector concentration risks.
- Sector rotation and defensive allocations are important. Favour resilient sectors such as consumer staples, healthcare and utilities, while avoiding overstretched sectors such as tech (2000), banks (2008) or energy (2020). Valuations are important when considering which shares to buy.
- Use alternative assets for stability. Hedging strategies and inflation-protected assets such as gold consistently protect against severe market events.
- Rebalancing and long-term discipline. Staying invested and rebalancing into stocks at market lows speeds up recovery, capitalising on history’s pattern of eventual rebounds.
Market crashes are a certainty, but the impact on investors depends on how well their portfolios are structured and their ability to stay level-headed during such periods. History has proven that diversified investors recover faster, while those who panic and sell at the bottom lock in permanent losses.
For SA investors global diversification, multi-asset allocation and an awareness of currency risk are essential tools for navigating uncertainty. Instead of fearing the next market downturn, prepare for it with a portfolio that is designed to withstand shocks, recover quickly, and position for long-term growth.
The key lesson? The best investors don’t predict the next crash — they prepare for it.
• Maré is wealth manager at Netto Invest.
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