In the aftermath of the “permanent” lifting of Covid-19-related lockdowns, while most South African investors will gravitate towards safer, lower-risk asset classes, a growing minority of South African wealth investors will allocate a higher proportion of their assets to high-risk investments.
This is the opinion of Kondi Nkosi, Country Head for Schroders in South Africa, referring to the 2021 Schroders Global Investor Study, which found that in the face of continued economic uncertainty, wealth investors are exhibiting riskier investment behaviour.
Kondi says: “A snapshot of the data from the study reveals that in the wake of the pandemic, South African wealth investors will allocate more of their money towards their savings and low-risk asset classes. However, 39% of respondents claim that high-risk investments make attractive prospects now that ‘permanent’ lockdowns have been lifted. This is particularly true of younger generations.”
Findings of the study include:
- Many South African wealth investors are investing in high-risk asset classes that are new to the market, including emergent sectors such as electric vehicles, biotech and cryptocurrencies,
- Some investors are exhibiting extreme investing behaviours,
- Low interest rates incentivise risky investing, and
- Two-thirds of South African wealth investors claim that the performance of their investments has an impact on their mental health.
The findings point to the fact that, for many investors, the economic instabilities that have come to characterise present-day South Africa are compelling enough to justify taking greater risks – perhaps to compensate for the uncertainty.
According to the study, the appetite for high-risk investments is the highest amongst the 18-37 age group, and decreases notably as age increases. Amongst South African respondents, millennials (22-41 years old) demonstrated the most significant inclination towards risk. Older generations are the most risk averse. Few would have the appetite to stake their retirement savings on high-risk asset classes in times of increased market volatility.
Along with the appetite for higher risk comes a willingness to break into new sectors and assets for the first time. These new markets include electric vehicle-related stocks and funds, biotech, internet and tech-related stocks and cryptocurrencies. In this regard, the South African data mirrored the global outlook.
Nkosi says: “Historically, investments into real estate and commodities attracted the most investment, but during the final stage of the study, we saw South African interest in internet and tech company stocks increase to 54%. We also saw 70% of South African respondents investing in cryptocurrencies like Bitcoin, Ethereum and Litecoin. Given the extreme volatility of crypto assets, it’s of no surprise that it’s highly represented.”
Presented with a scenario in which interest rates were at zero or negative, 53% of South African wealth investors aged 18-37 said they would make higher-risk investments in pursuit of returns, while roughly 26% would be more likely to spend and less likely to save. This is despite 71% of this age group stating that the performance of their investments has an impact on their mental health.
“We need to see these findings in the context of record low interest rates in South Africa and indeed, throughout the rest of the world. Although the lifting of lockdowns has had a definite effect on investors’ appetite for risk, low interest rates have also helped to restart the decade-long bull run that emerged post-financial crisis and contributed to the rise of the risk investor,” Nkosi said.
“Investors need to approach risk appropriately and with discernment given the impact that performance has on their mental health”, he said.