The past year was a very interesting time for financial markets and the relevant participants. Portfolio Managers and Financial Advisors have continually asked the prevailing question of the stock market “correction” while clients praise the returns of their investment portfolio. In actual fact, there has been such a large mismatch between our local economy and the stock market that if the above questions have not already been raised in your client discussions, they soon will be!
Continued flow of foreign capital to local markets has pressured the JSE boiling point to over 52 000 points, when most expectations were that the market would never hit 50 000 in the foreseeable future. Like every racehorse has its day, so the bullish nature of the local horse will to finish its race. With continued local economic pressure through ongoing wage strikes, rising inflation and rising unemployment figures, there is no better time than now to diversify your client portfolios with offshore exposure.
The recent emergence of foreign markets from the dark clouds of the Sub-prime and Euro Debt Crisis provides local investors with an opportunity to share in the prosperity. The US has shown improved economic data in the form of falling unemployment figures, rising business and consumer confidence and increased home sales indicators. While to the Far East we have witnessed increased export figures through continued government support in the form of tax cuts, reduced fiscal spending and infrastructure development projects. The EU area too has brought their chips to the table through radical monetary policy actions to encourage banks to increase credit lending and in turn stimulate the European economies.
Given the facts, one may pose the question that foreign stock markets have seen the same rally over the past financial year as the local market, and that observation is correct. Although assessing the data of improving offshore economies, it is possible to justify continued returns in these markets, although back home in Sunny South Africa our local economy is ridden with poor economic circumstances. Unfortunately there are only one of two alternatives for the large disparity in our stock market returns and economic growth, that being a large boost in local economic data (falling inflation, rising GDP, reduced wage strikes etc) or the correction of stock market bringing stock prices more in line with company earnings. I think the latter is more probable and hence the time for portfolio rebalancing has dawned upon investors who are fully exposed to local market returns.
When considering your next asset allocation mix of your client portfolios, bear in mind that spreading portfolio returns to alternate market may be the best financial advice for the coming year to ensure your clients investment returns are maintained for another market cycle. Choosing particular offshore investment locations, and how to do due diligence on offshore managers is the subject of another discussion.
Should you have any questions on Offshore Investments, Asset Consulting or Structuring of Client Portfolio’s, please contact us: firstname.lastname@example.org.
Written by Alex Funk
Head of Asset Consulting