Should I shun equities?

A Fin24 reader asks:

Every business news bulletin nowadays tells us that South African and international markets are seriously volatile. As people who have invested in the equity markets, what should we do? Should we pull out of these investments?

Alwyn van der Merwe, a director at Sanlam Private Investments, responds:

I would urge investors to pay more attention to company valuations. (Valuations are used to estimate the economic value of an owner's interest in the shares and are used by financial market participants to determine the price they are willing to pay or receive to consummate a sale of a business or shares.)

Investors should do so because it will take time for the eurozone crisis to be resolved. And if investors look carefully at their valuations, they can get good quality assets at good prices. This is the case internationally and locally.

In addition, investors should not shy away from quality. They should also increase their exposure to risk when they are doing their asset allocation. One asset class they should avoid is cash. It is not a solution or an alternative, given this country's inflation.

Jeremy Gardiner, a director at Investec Asset Management, responds:

The time to adjust your portfolio is when markets are calm or in anticipation of the weather coming ahead, and not when you are in the eye of the storm already. Tinkering with your portfolio at this time will most likely see you making emotional rather than fundamental decisions.

Yes, the markets have taken a smack and they may still weaken further. This weakness is in reaction to global events and emerging markets such as Brazil and India, which are being punished just as severely.  

What you do need to do is correctly identify your risk profile (risk exposure), create a portfolio appropriate to that and let it ride out any market volatility.

 - Fin24