By: Roger Eskinazi
South Africa’s economy is part of a diverse group of Sub-Saharan African economies known to be more impacted by global markets than their North African counterparts.
As such, South Africa’s financial market is susceptible to a broad range of macro- and micro-economic forces.
Harnessing and taking advantage of the many opportunities to be found within local markets rely heavily on the ability to build investment portfolios that are resilient enough to outlast market shocks and volatility.
Factors impacting the local market
The local investment landscape has seen its fair share of turbulence. The rise of geopolitical tensions in Europe – and most recently, the Middle East – has caused widespread uncertainty and disruption.
During politically charged events and times of conflict, investors are more prone to make impulsive decisions to reduce their risk exposure.
Large selloffs, for example, can in turn cause sharp declines in certain assets, further worsening the extent of price fluctuations.
On a global scale, the Covid-19 pandemic dealt a deafening blow to financial markets.
Although markets showed signs of recovery immediately following the end of the lockdown, the resurgence of Covid-19 variants and ongoing disruptions to multiple international supply chains continued to hinder economic performance.
Amid the economic slowdown that followed in 2022, many investors turned their attention to developing markets like South Africa for more favourable returns.
On the local front, however, South Africa was facing its own challenges, including the worsening energy crisis and various controversies that surrounded several State-Owned Enterprises.
Coupled with this, runaway inflation and a record number of consecutive interest rate hikes were also brought to bear on financial markets.
Needless to say, the resulting volatility compelled many investors to take precautionary and proactive measures to protect the long-term viability of their investments.
Building an investment portfolio that is designed to withstand turbulence and reap long-term rewards despite short-term setbacks is crucial to success as a local investor.
Planning for risk is just as important as anticipating reward.
The best investors are strategic, big-picture thinkers who can factor in multiple possibilities and maintain a balanced view, even when market volatility causes unexpected disruption.
Diversify your portfolio
Diversification has long been touted as one of the most effective ways to buffer your investment portfolio against emerging risks.
A well-diversified portfolio should include a balanced spread of investments across various asset classes and sectors as opposed to “putting all your eggs in one basket”.
When sudden fluctuations occur, investors who have diversified portfolios will be able to minimise their losses and maintain more stable returns over time.
Diversification is in fact one of the major benefits of investing through an online trading platform that gives investors exposure to multiple different financial instruments.
Our investors gain exposure to many different kinds of assets, from more “traditional” asset types like commodities and bonds, to newer types of instruments like forex and cryptocurrency.
This gives investors the opportunity to structure robust portfolios as well as to trade in the assets they are familiar with, while also learning about more emerging asset classes.
And then within each asset class, there are multiple options – different currencies for example, or different categories of commodities.
With the right mix, investors can build portfolios that align with their short-term and long-term goals – no matter what happens in the market from day to day.
Stick to a trading plan
Seasoned online traders will also attest to the importance of creating a trading plan and sticking to it.
A trading plan should provide a clear overview and outline of your objectives – which should have predefined timelines and parameters.
A trading plan should also include notes on what your appetite for risk is and by extension, which asset classes are best suited to this risk profile.
As far as a trading plan goes, it should include both a broad outline as well as granular details such as under which conditions a trade should be initiated and the size of those trades.
This will help investors avoid making hasty decisions based on emotions like fear and greed during times of market volatility.
Ultimately, having this kind of trading plan will serve as a blueprint for future decisions and a safeguard against impulsivity.
Stay informed
It's equally as important for investors to stay informed. Periods of market turbulence are notorious breeding grounds for misinformation, fear mongering, and unnecessary panic.
In order for investors to bolster themselves against being influenced by “hive mind” or buying into the mentality and approach of the masses, they need to stay informed.
Thankfully, investors today have many valuable research tools and sources of insights at their disposal.
There’s always something to read, listen to or share. With access to the right information, you can ensure that every decision you make – regardless of what’s happening in the market – is a well-informed one.
* Eskinazi is the managing partner at Tickmill.
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