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Investors urged to stay calm after Cabinet reshuffle

Mar 31 2017 19:21
Carin Smith

Cape Town - Investors were cautioned to remain calm in the wake of President Jacob Zuma's Cabinet reshuffle.

In a note issued on Friday PSG fund specialist Lourens Joubert reminded clients that it is an important time to keep calm.

In his view, the firing of former Finance Minister Pravin Gordhan was the most impactful news. He reminded clients that similar decisions in December 2015 had a profound effect on financial markets.

READ: Gordhan axing: Why the rand is remarkably calm

"Markets have reacted on last night’s news that a cabinet reshuffle occurred. There will again be an elevated level of political uncertainty. We are mindful of media hype and its impact on you. High volatility of our local market is expected as generally uncertainty prevails," explained Joubert.

"While we understand the emotional reaction to the current political climate...we have consistently communicated the merits of a diversified portfolio of high quality companies that are not trading at elevated levels – margin of safety remains key."

Glacier by Sanlam said in a note to clients on Friday that no one can be certain about what markets will do going forward or what returns will be like for various asset classes, but what one can be certain of is further volatility.

"Politics does have an impact on financial markets, however, these are mostly short term. People get spooked and they sell out of risky investments, take their money offshore and prefer to invest in US-domiciled equities, manged by overlord Trump, or UK-domiciled equities, currently going through Brexit. Bond yields may spike, financials might get sold off and our currency will weaken," Glacier by Sanlam said in a subsequent statement.

"Over a longer term, however, fundamentals tend to drive markets. Our currency tends to be driven by commodity prices, equity markets tend to be driven by earnings and bond markets by interest rates and inflation expectations."

Glacier by Sanlam pointed out that some opportunistic investors will use this time to seek out buying opportunities as was the case in December 2015.

"Those investors who kept a cool head and used December 2015 as a buying opportunity were handsomely rewarded, leading to bonds being the best performing asset class of 2016," it said.

"In time we might look back at these events and might realise that they were the catalyst for good change to come. However, we simply do not know and prefer not to speculate too much. What is, however, certain is that the longer you stay invested, the more you increase your chances of benefiting from risk premium, market inefficiencies and behavioural reactions, but even more importantly - compounding."

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