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Johannesburg – Investors may have to be satisfied with smaller returns for years to come while governments play around with the European economy, attempting to resolve its sovereign debt crisis.
Investment Solutions head of investments Glenn Silverman says global economic trends require investors to scale down their expectations on returns.
“Whereas you previously expected 10% per year, from now on you can get only 5%. Investors can't expect the returns they received in the years before the crisis.”
Silverman reckons the challenging conditions could persist for as much as a decade.
Earlier this year Professor Joseph Stiglitz, Nobel prize-winner and economist, said the European and American economies had deep fundamental problems.
“There will be some ups and downs, but for several years no strong recovery. From the viewpoint of American workers no-one really expects business to be normal before 2017 – and that’s if one is optimistic.”
Poorer investment returns can have a significant influence on ordinary South Africans’ retirement provision.
Silverman says returns also come under pressure when authorities interfere in markets, as with the quantitative easing in America and the cheap loans provided to European banks by the European Central Bank (ECB).
Such steps lead to erroneous allocation of capital, he says. That is currently very evident and it appears that it will increase.
Silverman says market conditions will probably remain particularly challenging for some time. “We can expect a difficult decade with precious few safe havens.”
He says local asset managers are also experiencing challenges in achieving the yields to which they have been accustomed.
To deliver returns five percentage points above consumer price inflation (CPI) is becoming increasingly difficult with a portfolio of local assets, he says. To do so requires a diversified global mandate.
Silverman says investors should therefore ensure that their investments are diversified as broadly as possible and they will also have to have a long-term approach.
Johan Rossouw, group economist at Vunani Securities, says it's still very difficult to judge when the European debt crisis will come to an end. The problem is that everyone is still fumbling around in the dark as to how to resolve the crisis.
Rossouw says that it's not a foregone conclusion that the steps taken to deal with the crisis will have the desired outcome.
We are moving into uncharted waters, he says. That’s not to say that remedies that were previously successful will help resolve the same problems now.
Last week the ECB lowered the eurozone’s interest rate by another 25 basis points to 0.75%.
But economists are concerned that lower interest rates won't be able to relieve the eurozone’s predicament. They believe weaker economies in the region won't be able to bounce back if they have to keep the relatively strong euro as their currency.
Rossouw says however that every eurozone country’s own interests could stand in the way of the changes required to resolve these structural problems.
One has to hope, he says, that a point will be reached where countries will make sacrifices in the best interests of all – but that will be a long process.
PSG Konsult economist Dawie Klopper says European structural issues, such as the agreement underpinning the eurozone, will ultimately not be able to disrupt the business cycle.
The authorities are prepared to tackle the problems and the economic cycle should prevent the prolonging of the recession, says Klopper.
For that reason it's improbable that the eurozone will remain in reverse gear for decades.
He reckons market forces are more likely to tear the eurozone apart. The Germans will probably opt out and the rest of the eurozone will benefit from a weaker exchange rate.
- For more business news in Afrikaans, visit www.sake24.com
Investment Solutions head of investments Glenn Silverman says global economic trends require investors to scale down their expectations on returns.
“Whereas you previously expected 10% per year, from now on you can get only 5%. Investors can't expect the returns they received in the years before the crisis.”
Silverman reckons the challenging conditions could persist for as much as a decade.
Earlier this year Professor Joseph Stiglitz, Nobel prize-winner and economist, said the European and American economies had deep fundamental problems.
“There will be some ups and downs, but for several years no strong recovery. From the viewpoint of American workers no-one really expects business to be normal before 2017 – and that’s if one is optimistic.”
Poorer investment returns can have a significant influence on ordinary South Africans’ retirement provision.
Silverman says returns also come under pressure when authorities interfere in markets, as with the quantitative easing in America and the cheap loans provided to European banks by the European Central Bank (ECB).
Such steps lead to erroneous allocation of capital, he says. That is currently very evident and it appears that it will increase.
Silverman says market conditions will probably remain particularly challenging for some time. “We can expect a difficult decade with precious few safe havens.”
He says local asset managers are also experiencing challenges in achieving the yields to which they have been accustomed.
To deliver returns five percentage points above consumer price inflation (CPI) is becoming increasingly difficult with a portfolio of local assets, he says. To do so requires a diversified global mandate.
Silverman says investors should therefore ensure that their investments are diversified as broadly as possible and they will also have to have a long-term approach.
Johan Rossouw, group economist at Vunani Securities, says it's still very difficult to judge when the European debt crisis will come to an end. The problem is that everyone is still fumbling around in the dark as to how to resolve the crisis.
Rossouw says that it's not a foregone conclusion that the steps taken to deal with the crisis will have the desired outcome.
We are moving into uncharted waters, he says. That’s not to say that remedies that were previously successful will help resolve the same problems now.
Last week the ECB lowered the eurozone’s interest rate by another 25 basis points to 0.75%.
But economists are concerned that lower interest rates won't be able to relieve the eurozone’s predicament. They believe weaker economies in the region won't be able to bounce back if they have to keep the relatively strong euro as their currency.
Rossouw says however that every eurozone country’s own interests could stand in the way of the changes required to resolve these structural problems.
One has to hope, he says, that a point will be reached where countries will make sacrifices in the best interests of all – but that will be a long process.
PSG Konsult economist Dawie Klopper says European structural issues, such as the agreement underpinning the eurozone, will ultimately not be able to disrupt the business cycle.
The authorities are prepared to tackle the problems and the economic cycle should prevent the prolonging of the recession, says Klopper.
For that reason it's improbable that the eurozone will remain in reverse gear for decades.
He reckons market forces are more likely to tear the eurozone apart. The Germans will probably opt out and the rest of the eurozone will benefit from a weaker exchange rate.
- For more business news in Afrikaans, visit www.sake24.com
