COVID-19 has changed the world in many ways. It has changed the way we work, socialize, exercise, communicate, eat, sleep and so it goes on.
Our lives will never return to the way it was before the pandemic. The new normal is waiting for us beyond COVID-19. For some of us it has been easy but for others it has been the most challenging time of their lives thus far.
Part of this challenge and the new normal lies an important component in everyone’s lives, their investments. Will our pension funds look different in a few months’ time? Are fund managers changing their views? Where should we invest? Are our investments safe?
Where and how are fund managers going to invest? Where should we invest ourselves? These are important questions for us post COVID-19.
We have gathered some important information to try and help us understand the future and to try and guide us in the right direction when it comes to our investments. Investing offshore has become a very important component of South Africans' investment portfolios.
When looking offshore now we need to be aware of COVID-19 and the way each country has handled the crisis. For example, when did they implement lockdown? This will probably tie into how long it will take them to get out of lockdown, and how long it will take before their economy starts to recover. Europe seems to be right in the eye of the storm, they are behind the curve in terms of recovering from the pandemic. On the end of the scale we have China, who went into lockdown quickly, and we have seen them being open for business again. Great news for China and for countries working with them - Africa and China have strong economic ties, therefore we could see the continent benefiting from where China is right now.
When considering where and how to invest, there are a few basic principles we need to take note of. We need to separate what is a temporary opportunity versus long term gain. We have seen many investors buying Sasol shares recently. But just as many are buying we are seeing a lot of sell offs as well. This is short term opportunism. Others may find the Sasol company a great company to invest in for the long term and therefore buy and hold.
Decide on what you are trying to achieve. There is a major difference between trading and investing.
When looking to buy a share offshore, consider where we are globally with the crisis. What are the future prospects for the company you would like to buy into? The big ones for me that stand out are the likes of Zoom and Netflix in US. Both have seen significant growth in recent times and with lockdown still in force, they may continue to look attractive. Locally we have Naspers who own Tencent, a Chinese based gaming company. Gaming is popular will continue to be in the near future.
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Economists are suggesting looking for high quality stocks in the emerging market space. Look for companies that can adapt the fastest, are innovators and that can meet the demands of the consumer.
It feels like the hardest hit will be the travel and tourism industry. There is a long way to go for these companies to be able to start trading again.
The International Monetary Fund recently released a forecast on the global economy and the areas that will recovery the fastest. Some key take aways from the forecast for me are that China and India will show growth in 2020 and will continue to increase in 2021. Germany is predicted to be one the fastest growth economy out of the G7 countries. From the more advanced nations, the USA is shown to have the better growth in both 2020 and 2021. The IMF predicts our economy will slow to -5.8% but improve to 4% in 2021.
Whether we are looking globally or locally, the basic principal of why you are investing still applies. If you are looking for growth in the long term, focus on equities and property shares. Whether this is in the form of direct shares, exchange traded funds or unit trusts. If you are investing for more short term, less than 5 years for example, focus on more fixed income and bond instruments.
When looking abroad, we as South Africans are usually wanting to invest due to our weakening Rand. Which is a good reason. Over the last 30 years the Rand has weakened by over 195% against the US Dollar. But also, be aware that the Rand can strengthen over a shorter period of time. The Rand is deemed to be undervalued now and therefore room for our currency to improve this year. So, don’t only use the Rand as a reason to invest offshore. The biggest factor is diversification and access to a larger pool of investment opportunities around the World.