Word on wealth: Comfort for investors living in interesting times

Business is pinning its hopes on a centre-right coalition, which the writer had suggested might spark short-term unrest, but provide long-term stability.

Business is pinning its hopes on a centre-right coalition, which the writer had suggested might spark short-term unrest, but provide long-term stability.

Published Jun 8, 2024


Two weeks ago I penned a column titled, “Our watershed election: Should investors be worried?”, in which I set out four possible political scenarios depending on how well the ruling party fared. Scenarios 1 and 2 were if it won a majority or over 45% of the vote, resulting in more of the same. Scenarios 3 and 4 were if it fared worse and was forced into either a left-wing or centre-right coalition with one of the larger parties.

We can now rule out Scenarios 1 and 2, but the way forward is turning out not as clear-cut as I envisaged. A further scenario has been mooted, which may well have been taken further by the time you read this: The ANC goes it alone as a minority government.

Business is pinning its hopes on a centre-right coalition, which I suggested might spark short-term unrest, but provide long-term stability. I have revised this view after seeing a LinkedIn post by entrepreneur and author Daniel S, part of which reads as follows: “A coalition will be formed to great media fanfare and market reactions. After a while, some politician will wake up with a surge of ambition and the coalition partners will develop irreconcilable differences. The coalition will break up and markets will overreact. A new coalition partnership will be formed until they develop irreconcilable differences and break up. Markets will overreact again... and again… .”

Whatever the immediate outcome of the inter-party negotiations by the end of the prescribed 14 days, South Africa is facing a rocky, unstable five years.

For local investors with money in discretionary investments and retirement funds, the antidote to market volatility, as financial experts keep telling us, is diversification – across asset classes and geographies. And although passive, index-tracking funds have their advantages, I am inclined to favour well-managed active funds in this environment. By responding to events as they unfold, an active manager can reduce volatility in the portfolio.

In Old Mutual Investment Group’s “Post-Election Analysis” virtual presentation this week, portfolio manager Meryl Pick provided some comfort for panicky investors by making the following points:

  • There’s always uncertainty in financial markets. "It's an illusion to think you're ever not in uncertain times," Pick said, giving examples of the Covid pandemic in 2020 and Russia’s invasion of Ukraine in 2022.
  • Markets are influenced more by global events than local politics.
  • Politicians tend to moderate their radical views once they have to deal with the realities of governance.
  • Legislative changes won’t happen overnight. “What we see in the next five years will be incremental, to be quite honest,” Pick said.

More comfort comes from Old Mutual Group chief economist Johann Els, who reminds us that our democratic institutions are robust. “It is crucial to remember that South Africa has significant inherent strengths that will mitigate political risks. These include a strong Constitution with entrenched rights, an independent judiciary, including a fiercely independent Constitutional Court, a free media, strong and independent institutions such as the South African Reserve Bank, the Treasury and the South African Revenue Service, a well-regulated financial sector and deep capital markets,” Els says.

South Africa fought long and hard to establish a democracy. One thing we cannot allow is for our Constitution and democratic institutions to be undermined. Left- and right-wing parties can come and go like they do in other nations, but the bedrock on which the new South Africa was built must remain.

Finally, we can take comfort from the fact that the ruling party accepted its loss so graciously. Here’s another quote on LinkedIn, from financial writer Patrick Cairns:

“It is incredibly telling that no one is even talking about the fact that the ANC has accepted this election result without so much as a batted eyelid. This is truly momentous. Not just the fact that the ANC hasn't made a fuss, but that no one has made a fuss about the fact that the ANC hasn't made a fuss.

“That says a lot about South Africa’s democracy. While the ANC’s loss of support is being widely spoken about as remarkable, the fact that they have accepted it with equanimity is not. It’s simply taken as the way things are.

“If you had believed the naysayers, you would have been convinced long ago that the ANC would never accept an election result that didn’t favour them. Well, you were wrong.

“For all their failings, you can’t accuse the ANC of clinging to power. That’s democracy. And there are some people in much older democracies that should be taking notes.”

The last words go to Daniel S: “We will continue to build and improve the country, despite politicians and their games. We are South Africans, we are the strong people who create good times, we won't be fooled or shaken, we will prevail and build a better South Africa for generations to come.”

* Hesse is the former editor of Personal Finance.

** The views expressed do not necessarily reflect the views of Personal Finance or Independent Newspapers.