By Kondi Nkosi
Even amidst a climate of global economic uncertainty, South African investors expect to realise higher returns over the next five years compared to what was achieved in preceding years.
To do this, the majority of investors - regardless of experience - will enlist the help of a financial adviser or lean on the advice of fund managers, as the Schroders Global Investor Study (GIS) 2022 has found.
Schroders’ flagship study surveyed more than 23,000 investors from 33 locations globally. Among them were 400 South Africans, the majority of whom professed to have an ‘intermediate’ level of investment knowledge on a spectrum ranging from ‘beginner’ to ‘expert.’
The largest proportion (20%) of South African investors expect to realise returns of between 20% – 25% over the next five years, although the same percentage of respondents claimed to have made between 15% –19% total returns on average over the past five years.
This is indicative of a decidedly optimistic outlook held by South African investors when compared to their global counterparts. This could be attributed to the better-than-average expected performance of the country’s domestic market in 2021. In the context of growing global instability as well as the political shifts that are underfoot in South Africa, this position may change. Or it may very well come to characterise the inherently positive mindsets of South African investors going into 2023.
However local investors are less inclined to ‘go it alone’ in a climate of uncertainty.
According to the GIS, even the most knowledgeable investors in South Africa are turning to financial advisers to help them navigate the prevailing uncertainty. 44% of beginner/rudimentary investors indicated that they would be more likely to seek the advice of a financial adviser, with 50% of intermediate investors and 43% of expert/advanced respondents claiming the same.
Similarly, 47% of GIS respondents indicated that they are finding either actively or passively managed funds more attractive than six months ago. This is a clear indicator of a parallel rise in uncertainty on how to navigate what, for many investors, is unchartered territory and a rise in the confidence people place in financial advisers’ expertise.
We have to appreciate the unique and unprecedented position that South African investors find themselves in: caught in a climate of geopolitical instability and a local landscape that is undergoing a historic level of change. The role of financial advisers will become even more important going forward in helping South Africans to make clear and informed decisions that will reap long-term benefits.
It should be noted that the 2022 GIS placed on how local investors are responding to global economic phenomena, such as interest rate hikes and rising inflation.
In South Africa, where inflation hit a 13-year high during the latter part of the year, the findings of the survey were particularly compelling. 43% of respondents indicated that they had changed their investment strategy in light of rising inflation, 42% expressed their intention to do so in future and only 14% indicated that they had no intention of making any significant changes to their portfolio.
In terms of how South African investors aim to respond to rising interest rates, 66% indicated that ‘saving more and spending less’ was high on the agenda, followed by 57% who chose ‘investing in crypto-currencies such as Bitcoin and Ethereum’, and 55% whose preference was repaying debt faster.
Subsequently, among the top investment types that have become less attractive over the last 6 months were government bonds and cash (or cash equivalents) – both of which are vulnerable to increasing interest rates.
According to the GIS, in the years to come, half of South African investors will feel forced to take on more risk in order to meet their return expectations while 27% claim to have made investment decisions under pressure that they later regret.
These findings point once again to the need for South Africans to seek expert advice on what has become an increasingly complex investment landscape. This is particularly true in South Africa where 53% of investors believe that the performance of their investments has a direct impact on their mental wellbeing. In future, enlisting the assistance of an industry expert may therefore have far-reaching benefits, and is one of the most effective ways to ‘sense-check’ your investment decisions before making major changes based on limited knowledge.
Kondi Nkosi is the Country Head at Schroders South Africa
BUSINESS REPORT