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Don't make rash investment decisions based on policy panic, warns asset manager

Aug 22 2019 07:44
Tehillah Niselow

People should avoid making decisions based on individual policy elements in South Africa, resulting in rash changes to their investment portfolios, according to Herman Van Papendorp, head of investment research and asset allocation at Momentum Investments.

"As long as you have a well-diversified portfolio, you’re ok," Van Papendorp told Fin24 on Wednesday, after addressing a conference of investment professionals in Johannesburg.

He sketched the global macroeconomic environment with the expectation that the next few years will be marked by a synchronised slowdown. This will result in weaker economic growth internationally, lower interest rates and smaller investment returns.

In South Africa, the economy has been weak for the last five years and the country’s population expansion is outperforming GDP growth. The first quarter of 2019 saw a shock contraction of 3.2% although this figure is expected to improve for the second quarter.

Van Papendorp advised asset managers to diversify their portfolios and invest in as many asset classes as possible, such as bonds, cash and stocks. He also proposed that people consider alternatives such as private equity, infrastructure and direct property to cushion themselves against the ongoing uncertainty.

Not just news flow

He added that at 30% of one’s portfolio should be invested internationally, in developed markets.

"You have got to deal with market risk… and not just look at news flow," Van Papendorp added.

He said it is "way too early" to make any changes to investments based on the ANC’s 2019 manifesto promise to investigate the possibility of prescribed assets. This would force local pension and asset funds to invest in state owned companies or infrastructure for development purposes.

He also took a cautious approach to the National Health Insurance and expropriation of land without compensation, saying the policies seem unworkable and unaffordable.

Internationally, there has been massive concern about the inversion of the bond market yield curve last week. This refers to the phenomenon when near-term interest rates fall below shorter-term interest rates.

Van Papendorp says while the inverted yield curve is a good indicator of a coming recession, this usually takes a while to arrive and people should not immediately sell their assets to convert into cash, fearing a global crash.

"An inverted yield curve should be irrelevant if your portfolio is diversified," Van Papendorp said.

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