Risky assets

THE rand and JSE stocks are regularly described as "risky assets".

This is a far cry from the past. In the 1990s - before the Asian contagion threw global markets into a violent tailspin - the rand and SA stocks were deemed as being like oatmeal: heavy but undoubtedly consumable.

Shareholders knew takings would be acceptable but saw the assets as somewhat risk-free.

But things have changed.

When investors get nervous about problems in Europe or the US, the negative sentiment towards assets of emerging markets like SA is usually attributed to "risk aversion".

Does this mean SA assets really are risky?

Analysts say local currencies and equities are volatile assets but not risky.

This means the local currency and equities move up and down rapidly in a short period.

Analysts urge investors not think of making financial gains through these assets in the short term, saying a long-term strategy is advised.

This is in view of the fact that one- or two-day volatility is often shaped by trends in international economics and politics.

Rumour vs fact

Roeloff Horne, a fund manager at Miton Optimal, said in addition some savvy investors react to any rumour for their own benefit. "They usually buy on the rumour and sell on the fact," Horne said.

He was referring to an axiom whose underlying message is that financial markets rise when there are positive rumours, but often fail to sustain these levels when the facts become known.

In early February, investors were spooked by a notice that came from the office of President Jacob Zuma, the Treasury and the Reserve Bank.

In a statement released late on a Friday afternoon, the government departments said they would make a statement of national importance on Saturday. The rand and JSE lost ground after the announcement, which turned out to be innocuous: the inclusion of former President Nelson Mandela's picture on SA banknotes.

Johan de Kock, the head of equity research at Bellville-based Momentum Asset Management, said the rand is particularly volatile because it is difficult to forecast.

"If an investor wanted to make money (on that) Friday with investing in the local currency market for the short term, they would have lost a lot of money," said De Kock.

Kirshni Totaram, the head of institutional business at the Cape Town-based Coronation Fund Managers, said investing is shaped by the "megatrends" that originate in almost every aspect of the world – economics, politics, demographics and technology.

"Trends and changes in these elements create great opportunity for the long-term investor, but they also mean that investors... need to have the right frameworks in place to adapt their strategy and mindset in the wake of big structural changes," Totaram said.

 - Fin24