I have been on the road across the major cities of SA for the past two weeks talking to some of the more than 16-million members of pension funds, who collectively own R4.3-trillion in retirement funds. These members are the real investors, as they ultimately own the funds invested by various asset managers on their behalf. And they are worried.
A good proportion of these investors are now in retirement, which means they have a lot of time to read their return statements every month as well as everyday news flows, including social media platforms such as Twitter and Facebook. The general feeling I sensed is that for many of them everything seemed to be falling apart last month.
Certainly, if we look at sentiment indicators across the world their feelings are justified. Manufacturing purchasing managers indices, which gauge the sentiment of the ultimate decisionmakers in the manufacturing sector, declined in the US, Germany, France, Italy and Spain, among others. Only seven countries — Turkey, Brazil, India, Taiwan Australia, Spain and France — out of 18 that jointly account for 75% of global GDP have manufacturing sectors that are still expanding. These seven represent just over 17% of global GDP.
News flow on the policy and political fronts has also been negative. The standstill between the UK and EU continues. As it stands, the EU refuses to let UK Prime Minister Boris Johnson have his cake and eat it, so Brexit is unlikely to happen on October 31. If this turns out to be the case, the uncertainty will continue in the UK and broader Europe.
Across the Atlantic in the US, an inquiry to impeach US President Donald Trump has been authorised, but Trump says he will not co-operate. In the midst of this political storm the US department of commerce has blacklisted some 28 Chinese companies, including those that operate in artificial intelligence, surveillance and security, ahead of trade talks this week. All this means is that the technology war expressed through trade continues.
As if this is not enough, Middle East tensions continue to rise after Trump’s decision to allow a Turkish military operation in northern Syria. There is still confusion over what this means, even among those who are experts in analysing the Middle East.
The above mentioned are a host of issues that will move markets at different times and to varying degrees. The point is that market volatility will remain for some time, and for the investors who should have a longer investment horizon but choose to focus on the short-term investment performance, peaceful sleep will likely be lost, unnecessarily.
This short-termism is not only restricted to tracking short-term returns, it also extends to bigger issues. Here at home, a constant question was why SA hasn’t seen much change in the economy despite a change in political leadership more than 18 months ago. Even the most informed analysts who are published on these pages ask the same question.
Inertia and momentum, concepts borrowed from physics, also apply when it comes to the economy. What we are observing in economic indicators is the consequence of action, or inaction, in the past few years. The reforms under way, beginning with the rebuilding of institutions, will only show up in improving economic indicators 12 months from now.
For the real investor out there, global factors such as political developments and US-China trade talks, among others, which can cause market volatility, will always be present, especially over shorter time periods. Over longer periods, volatility is less pronounced and traditional asset classes such as equities will be rewarded. The good thing for this year is that all major asset class returns are positive, unlike in 2018 when almost everything locally and globally was in negative territory.
On the economic front, the developments around rebuilding local institutions surely must be encouraging because it is through strong institutions that economic policies get implemented. The change appears to be slow, but long-lasting reforms do not happen overnight; they take time but once they are done they can yield great economic benefits.
• Isaah Mhlanga is chief economist of Alexander Forbes.
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