| If there is any lesson to be learnt from the Brexit debacle it is that you can never predict the future – even if you are the Prime Minister of England. That is why investing is about the long-term and not short-term market fluctuations, based often on irrational decisions.
You cannot predict market movements over the next six months, but you can have a reasonable level of certainty about the long-term prospects of the companies you are invested in. People are not going to start making less cell-phone calls just because Britain leaves the EU, so the impact on Vodafone’s profits will be negligible even if its share price gets caught up in the Brexit noise.
If the risk profile of your investment is still aligned to your long-term risk profile and is well diversified, be careful of any knee jerk reactions and avoid making panicked, hasty decisions that go against your overall investment strategy. This is especially true of your retirement funds which, thanks to Regulation 28, should well diversified and which by their very nature have a much longer investment term.
Once all the noise and chaos is out of the system, good quality companies with good profits will see their share prices recover. The reality is that while UK growth is likely to be affected, the ramifications of Brexit will be far less than the current market volatility suggests.
In fact, a weak market offers opportunities to investors to buy into good quality assets being sold by panicky investors. For individuals investing in UK shares, it is worth remembering that most of the revenue earned by these London listed companies are actually from outside the UK, often in emerging markets and a weaker sterling boosts their reported profits. UK exporters will also benefit from a weaker sterling.
From a local perspective, although Brexit volatility fed into our markets, we have seen a strong resurgence in foreign buying of our equity market with foreigners buying R60bn worth of equities in June.
Firstly, money has been flowing back into emerging markets. The MSCI Emerging Markets Index in dollars is trading now at the same level as nine years ago which a number of value-based investors find attractive.
Secondly there has been a good recovery, from extremely low levels, in many commodity prices and this is boosting emerging markets with the JSE Mining Index up 57% in dollar terms for the first six months of the year.
What to do when markets crash
- If you understand your investment objectives and are comfortable that your investment portfolio reflects those objectives just sit tight.
- If you are feeling anxious and worried about the impact on your retirement nest egg, meet with your financial adviser and ensure that your investment strategy is in line with your risk tolerance, keeping in mind that this should include the risk you need to take in order to achieve reasonable growth. A crash is not, however, the time to start selling out of equities.
- If you have some cash to invest, look for the pockets of opportunity that have been opened – especially if you want to increase your offshore exposure.
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