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WAR / COVID / FLOODS / RISING INFLATION

by | May 1, 2022

We are living in an unprecedented time! History tells us that a global pandemic has occurred every 100 years, (1720 Plague; 1820 Cholera; 1920 Spanish Flu; 2020 Coronavirus) which means that most people do not experience such an event in their lifetime. Now just as we are hopefully starting to see the back of Covid we are witnessing another severe outbreak in China, it’s birthplace. On top of dealing with such a disruptive global pandemic one of the world’s Nuclear Superpowers i.e., Russia has invaded Ukraine which is having a major impact on not only Ukrainian lives but on the world in general.

If this wasn’t enough, locally we have just witnessed devasting floods that ravaged KwaZulu-Natal, and this is not long after last year’s damaging looting and rioting. The South African Rand has recorded its worst week since 2020, falling by 7% for the week, caused by rolling black outs and the recent floods. It will serve you well to take note of the fact that the Rand has lost approximately 2,000% since 1970, which is why we strongly advise on the importance of diversification…

United States

World stock markets have pulled back year to date as the U.S. Federal Reserve accelerates interest rate hikes in order to try and curb rising inflation, which is now sitting at 40 years highs around the 8.5% level. The simple explanation of what caused this was the U.S. Federal Reserve printing money and gifting citizens money during the Covid pandemic with the idea of keeping the economy turning. Unfortunately, this money was largely spent / gambled away and ultimately led to high inflation. The Fed was too slow to re-act and now faces the difficult task of trying to curb inflation by raising interest rates quickly, but not too quickly that the economy tips over and enters a recession.

China

What the numbers have shown us is that hard lock downs are devastating for the economy and livelihoods, and in hind-sight was a mistake. China has adopted a zero tolerance approach (opposite to most countries strategy) and has recently locked down Shanghai City and it’s 25 million citizens! Curbing the spread of the virus is virtually impossible, so the only real option is vaccinations and herd immunity. There are now rumours that Beijing is on the cusp of being locked down which is another 23 million people. The massive knock on effect is that China’s economy will be severely hampered which will be negative globally as China is the second largest economy after the USA.

Russia / Ukraine

The Russia – Ukraine war hits the 2 month mark with no or little end in sight. Putin’s invasion has back-fired spectacularly. His idea of a quick blitz-krieg and returning the Soviet Union to former glory has been stopped literally in its tracks. With the support of the West and determined and tenacious resistance Ukraine has halted the Russian invasion and pushed them back out of their major cities forcing the Russians to regroup and focus their attention on the Eastern Border where they have been fighting since 2014. What was expected to be a quick victory has turned into a nightmare for Putin. Russia has taken large casualties and major loss of military hardware. On top of this the West has imposed major financial sanctions on Russia which they will feel for years to come. Instead of weakening NATO and the West, this War has had the opposite desired effect for Putin in that it has united both the West and NATO like never before. The pain and suffering that the Ukranians are experiencing is both tragic and devastating and we hope that once the dust finally settles the West will help Ukraine rebuild stronger and better than ever before. While we all watch these horrific images in the comfort of our homes one just hope’s that this war does not spill over into greater Europe and those nuclear weapons remain out of play…

What to do                                                                           

With all this negative news it is understandable that investors become anxious and will feel tempted to make changes to one’s investment portfolios. Although the Covid market crash was severe, falling 34% in just sixteen days we enjoyed a strong recovery and growth just a couple of months later. It is great receiving quarterly statements, but one must always remember to keep focussing on the long term and not get caught up in evaluating the performance of your investment from quarter to quarter. Investors in general would have been left feeling disappointed viewing their March statements as the markets at large pulled back in the first quarter.

Personally, I am in the fortunate position now that I have 25 years of investment experience under my belt having started my career back in 1997. Through this period I have navigated clients through many trying and difficult market conditions, namely:

Major Events since 1997

1997 – Asian Financial Crisis
1998 – Russian Financial Crisis
2000 – Dot Com Bubble
2001 – 9/11 attacks
2003 – Iraq War
2007 – 2009 – Global Financial Crisis (Housing Bubble)
2011 – S&P 500 stock market fall
2014 – Russia Invades Ukraine (Crimea)
2015 – 2016 – Chinese stock market crash
2020 – Covid-19
2022 – Russia Invades Ukraine / Covid-19 resurgence in China / surging inflation

Studies, mentorship, analysis, experience and most importantly history keeps showing us the way of what to do and what not to do, and it’s always the same, i.e.. long term investing and do not try and time markets, so sit tight. Below is the cycle of the emotions we experience as investors.

Lastly, below see two powerful slides that quite clearly demonstrate the importance of staying invested for the long haul and not trying to time the markets. You will see that Bull markets are completely dominant and last much longer than Bear markets. The second slide shows the dramatic impact and loss of missing out on just a couple of the best performing days. By now you know it is impossible to try and time the markets, so don’t! Attached find insightful Morningstar article “Worried about a Market Downturn? Remember your Goals.”