After a particularly difficult September, October was another fairly unsettled month for investors. South African and American markets struggled to make much progress, although the UK market managed to deliver a positive return.
Here is how some of the major markets performed:
October YTD
South Africa (ALSI) -0.1% -7.1%
USA (S & P 500) -1.1% 10.7%
UK (FTSE) 2.8% 8.0%
Rand / Dollar 0.1% 0.7%
One of the biggest concerns is the ongoing conflict in the Middle East and its impact on oil prices. At the beginning of the year, oil was trading at around $60 a barrel. During October, the price of Brent crude climbed above $120.
This is a significant increase, and the consequences extend well beyond the price we pay for petrol and diesel. Higher oil prices increase transport and manufacturing costs, which eventually feed through into higher prices for everyday goods and services. This puts pressure on inflation and interest rates.
Investment managers are also finding attractive opportunities outside the large American technology companies.
Emerging markets, including South Africa, are looking increasingly interesting. Share prices in many of these markets are more reasonably valued, and their prospects for earnings growth are encouraging. The outlook is certainly not without risks, but there are good reasons to remain cautiously optimistic about longer-term investment returns.
What does this mean for your investments?
The message remains the same: diversification and making sure your money is invested appropriately for when you will need it.
Different parts of your investment portfolio have different jobs to do. Money that you are likely to need over the next year or two should be invested in cautious, low-volatility portfolios. You don’t want to be forced to sell shares after a market fall simply because you need money to pay your monthly expenses.
On the other hand, money that you are unlikely to need for five years or longer should have sufficient exposure to growth assets, including local and offshore shares. These investments will fluctuate in value, sometimes quite sharply, but they also offer the potential for better long-term returns.
Nobody knows exactly what markets will do over the next few months. There are certainly reasons to be cautious, but there are also opportunities for patient investors.
Article by Kenny Meiring – Financial Wellness Coach