The answer to this question is addressed eloquently by Karl Leinberger, Chief Investment Officer of Coronation Fund Managers, who explains that “the human brain is hard-wired to survive physical threats, not to take advantage of a market crisis. Fear is paralysing and so investment time horizons shrink to prioritise survival now. There is a constant conflict between emotion and reason and in times of crisis, emotions trump reason. The hard truth is the more prices fall, the more afraid we become and the less we want to own. The brain responds to stories, anecdotes, and emotions and not to low prices.
There are always good reasons to believe more bad news is coming and investors often make very cogent arguments for why they should not buy. Even once markets start rallying, it never looks like it is sustainable. Again, investors attribute it to a dead cat bounce, a bear market rally or assume more bad news is coming.”
However, history shows us that this is often not the case. During the height of the 2008/9 Global Financial Crisis, there was a brutal collapse for nine months, and then – for no apparent reason – markets started recovering. Within three months of the trough on 9 March 2009, bourses had rallied 39%. We saw the same thing during Covid. A bottom-hit on 23 March 2020 as the world went into lockdown, and a 46% gain four months later.
“Asset prices should equal the present value of all future cash flows. However, very few investors look beyond the next two years, and as a result, share price moves in excess of 20% on quarterly earnings misses have become common. This, however, creates opportunity for those investors prepared to take a longer view.
The overwhelming observation and conclusion from managing money over decades, is that no crisis lasts forever. This highlights the point that for patient and disciplined investors, market crises provide outsized opportunities to buy assets cheaply, which results in strong periods of performance in subsequent years.”
“Investing is the only business I know that when things go on sale, people run out of the store.”
– Mark Yusko, CIO, and MD of Morgan Creek Capital Management
Global News
- US stocks dropped to their lowest level in 22 months on Thursday as the Federal Reserve repeated a hawkish tone, while turmoil in Europe continued to fray investor nerves. The S&P 500 fell as much as 2.9% during the day’s session but trimmed losses as markets closed. Its drop wiped out an ill attempt on Wednesday to rebound from a six-day slide.
- Most Americans are more indebted than ever, which is spotlighting a persistent and widening wealth divide in the US. Consumer debt, including credit cards, rose to an all-time high for 118 million US households, which saw this group’s debt level increase by $300 billion over the last year, the largest annual gain on record.
- US dollar strength has been “devastating to the rest of the world and should come back to bite” the country’s competitiveness and economic activity, eventually “forcing the Fed to pivot” away from its restrictive monetary policy, Ark Investment Management CEO and Founder Cathie Wood said.
- Earlier this week, the UK’s stock and bond markets had lost at least $500 billion in combined value since Liz Truss took over as Prime Minister. The country is dealing with the possibility of a recession, with investor confidence shattered by a shock tax-cutting budget, the most radical since 1972. Truss’ free-market agenda, involving the tax cuts and deregulatory plans, have also impacted the pound, with the currency having depreciated intra-week by 17.5% year-to-date against the dollar. This matters because a weaker currency makes imports more expensive, and Britons may not be able to afford to travel. Stocks are in freefall, making a recession extremely likely, a situation the Bank of England hopes to calm by buying as many bonds as necessary.
- The Bank of England needed to put measures in place to protect pension funds following Truss’ move, as fund managers running billions for pension funds faced collateral calls on strategies meant to give them exposure to long-dated assets to help match obligations that can extend decades. This caused UK bonds to stage a dramatic recovery.
- Truss and Chancellor Kwasi Kwateng held emergency talks with the head of Britain’s independent fiscal watchdog, the Office for Budget Responsibility’s, after failing to dampen panic in the financial markets in an attempt to shore up support for their economic plans. The Guardian has the full story.
- Turning to energy, from Kosovo in Europe to Sri Lanka in Asia and to Cuba in the Caribbean, power outages have been wreaking havoc around the world this year. In fact, the globe has never witnessed such a major energy crisis in terms of its depth and complexity
- The energy crisis provoked by the war in Ukraine may prove so economically destructive to both Russia and the European Union that it could eventually diminish both as great powers on the world stage. The implication of this shift—still dimly understood—is that we appear to be moving swiftly to a bipolar world dominated by two superpowers, namely China and the United States. Read more here.
- In breaking news today, Russian president Vladimir Putin has formalized Europe’s biggest land grab since World War II and accused the West of trying to subjugate his country. He said his take-over of four Ukrainian regions was irreversible.
- A whole range of carmakers and nations have plans to go electric. The largest US manufacturer, General Motors, says it will phase out fossil-fuel vehicles by 2035. Norway has set a goal to end sales of new petrol and diesel cars by 2025, the UK by 2030, and France by 2040. In Australia, only about 2% of new cars sold today are electric. (Less than 5% in 2021) US Federal government modelling in 2021 predicted a jump to 90% of the vehicle fleet by 2050. Read more here.
- Banking giants such as Goldman Sachs Group and Citigroup have agreed to pay regulators $1.1 billion for failing to monitor employees using unauthorised messaging apps when the world was forced to work from home during lockdowns. They are among the 16 financial firms that reached agreements with the Securities and Exchange Commission.
- Amazon.com held its annual device launch on Wednesday, which gave the strong indication that it is moving further into wellness, security, and the auto industry, underscoring an effort to weave its technology into every part of consumers lives. Its line up included a bedside device called Halo Rise and an upgraded array of Echo smart speakers, as well as a new kindle and enhanced security technology from Amazon’s Ring division.
- The S&P 500 was down 1.4% for the week, to Thursday’s close
Local News
- As South Africans head to the polls in 2024, and the ANC selects a new leader this December – it will take some time before South Africans have transparent insight into the sources of political party funding. South Africa’s Constitutional Court has ruled that the Executive Ethics Code, which should allow for funding disclosures, is unconstitutional, giving government a year in which to remedy it.
- Meanwhile lead prosecutor in Jacob Zuma’s corruption and fraud trial, advocate Billy Downer, has argued in court papers that the private prosecution brought against him is another attempt by the former president to avoid standing trial.
- Former mines minister Mosebenzi Zwane has been arrested on fraud and corruption charges, making him the third high-profile politician to face prosecution for the plunder of state funds during Zuma’s rule.
- The controversial Expropriation Bill – the country’s third attempt since 2008 to get rid of apartheid legislation still on the statute books – has finally been approved after 14 years. This makes it possible for expropriation without compensation in some cases.
- South Africa’s producer inflation rate, a key indicator of cost drivers for inflation, declined for the first time since January and by more than forecast after fuel costs declined. The index still gained 16.6% in August, but this was compared with a nine-year high of 18% a month earlier. There are signs this index will drop further.
- At the same time, the country lost 1.6 million working days in the first half of the year due to strikes over wages, up from 45,000 in 2021. This represents a more than 30-fold increase.
- In anticipation of the Medium-Term Budget Policy Statement on 26 October, Goldman Sachs forecasts that the government could start to stabilise its debt as early as this year. Assuming it can hold the line on spending over the medium-term, the country could be looking at a scenario where it is getting rating upgrades instead of downgrades.
- As South Africans continue to live with the scourge of load shedding, Eskom is dealing with planned maintenance being carried out to some units (5,897MW), while other units are down due to breakdowns (a whopping 16,739MW). The latest issue is that the power utility is struggling to get diesel from its supplier. This means it can’t operate two of its open cycle gas turbines — which means another 2,000MW of power off the grid.
- Cape Town aims to become South Africa’s leading renewables destination.
- While government is looking into solutions to Eskom’s unsustainable debt burden, National Treasury will likely take over much of the enterprise’s debt, which it can no longer service. This, however, will not come without obligations which have not yet been specified. The board was changed today, although CEO Andre de Ruyter retains his seat, Eskom will now be chaired by Nedbank chairman, Mpho Makwana.
- Paris-based Organisation for Economic Co-operation and Development has dropped its economic growth outlook for South Africa for the years 2022 and 2023 to 1.7% and 1.1% respectively, citing major risks to growth, including a lack of stable energy supply.
- Africa’s largest cellular operator, MTN, wants to grab its share of the bulging broadband market across Africa, aiming to rollout a total of 135,000km of proprietary fibre by 2025, and generate up to $1 billion (R18 billion) revenue per annum.
- The rand weakened past R18 per dollar for the first time since May 2020 and could be heading for further weakness on the back of a strong dollar, persistent loadshedding and concerns about recessions around the world.
- At the time of writing, the JSE All Share was up 0.4% for the week, and the rand was 0.1% stronger against the US dollar.
Sources: Dynasty, Bloomberg, BusinessLIVE, Daily Maverick, Reuters, News24, Foreign Policy, New York Times, ITWeb, The Guardian, Coronation Fund Managers, Analytics consulting, etc.
