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Waterfall News

What’s ahead for

financial markets?

By Adriaan Pask, Chief Investment Officer, PSG Wealth

Volatility returned to financial markets in 2020

due to various events, including the novel

COVID-19 pandemic, the oil price war and

credit rating downgrades.

t he path ahead remains highly #2 the imf eXPects

emerGinG markets to
uncertain, but emerging
markets may be more
resilient than many people Be more resilient than
deVeloPed markets
anticipate. Here are three possible The growth of the Chinese and
outcomes to watch out for. Indian economies will drive the the past 15 years. The 2008 global
global rebound after 2020 according financial crisis and the COVID-19
#1 UnemPloYment to the IMF, which predicts GDP pandemic have caused the largest
nUmBers Will rise growth in emerging markets (EM) market pullbacks in recent history.
The South African Chamber of and developing economies to rise to The impact of the strong US dollar
Commerce and Industry (SACCI) 5,9% during 2021, while advanced has also placed massive strain on EM
has warned that the country’s economies are forecast to grow by economies and investments, and South
unemployment rate could peak at as 4,8% next year. According to their Africa was no exception. Furthermore,
much as 50%, particularly due to the June 2020 report, the prospect of a political turmoil in the country added
impact that the lockdown to contain the weaker US dollar and low interest an element of uncertainty, which has
spread of COVID-19 is having across the rates globally will allow key central placed considerable strain on both
formal and informal sectors. National banks of EM countries to be more business and consumer confidence.
Treasury anticipates that more than aggressive with their monetary
2,5 million jobs could be erased, with easing. EMs are expected to recover Yet, despite this, equity markets
wages and salaries expected to fall by as in the years ahead and potentially have been able to deliver a return of
much as 30%. In context, the country’s outperform the US stock market. With around 13% for the 15 year period.
unemployment rate for the first quarter a lower cost of capital, private sector
of 2020 – before the national lockdown investment will also likely recover. This is in line with our forecast for
– rose by a percentage point to 30,1%. the period of inflation plus 7% for
#3 on the Jse, short-term this asset class. This illustrates why
These numbers will increase for the sPikes smooth oUt oVer long-term investing is important, but
second quarter – and the status by the time also that the assumption remains
end of the year remains to be seen, When tracking the movements of the realistic, despite being aware that
however, the CCMA has already received ALSI over the past 24 years, we can see various challenges will be experienced
over 16 000 referrals and it has been how short-term spikes similar to those over the investment term.
reported that about 1 800 of these cases prompted by the global pandemic
deal with retrenchments. It may take smooth out over time. This indicates keeP YoUr eYes on the
a few years to get the unemployment that, while these short-term spikes lonG-term Goal
rate to revert to pre-crisis levels, but may be painful, they have a smaller Reacting to short-term noise isn’t helpful.
we expect these numbers to normalise impact on the upward trajectory of Market volatility is part and parcel of any
in the long-term. It is also important investments over the long-term. full investment cycle. Good investors
to note that this prevailing rise in anticipate and prepare for some level of
unemployment is not just a distinctively In retrospect, South Africa has dealt turbulence along the journey and remain
South African problem, but a global one. with its fair share of headwinds over focused on their long-term objectives.

20 Waterfall Issue 8 2020