/ 17 January 2011

Investors, don’t panic

In the early months of last year, a falling JSE and resultant market jitters led to a lot of investors exiting the market for cash. They missed out on a solid recovery across several asset classes.

The lesson, then, for 2011, is to stay calm, according to Craig Pheiffer, general manager of investments at Absa Investments.

“A little more resolve and a longer-term view would have resulted in significant gains for investors,” said Pheiffer, suggesting that 2011 should see most investors remaining in the market, if only because the dangers of staying out of it were illustrated in 2010.

“Over-commitment to cash turned out to be short-sighted, especially for those who remained on the market sidelines for much of the year,” he said. Investors made a beeline for cash in February but local equities recovered and were up by 23% by early December.

Just before the year-end holidays, says Pheiffer, well-diversified investors were up a total of about 17% in local equities, 13% in bonds and preference shares and up by about 29% in listed property. Those who retreated into cash had to be satisfied with a 6,5% return as interest rates continued their slide in 2010. After tax, they struggled to beat inflation.

What lies ahead for 2011?

According to Pheiffer, a continued spread across the principal asset classes appears to be on the cards in the coming year.

“The same global factors — and uncertainties — still apply. But memories of the dangers of staying on the market sidelines are fresh in the minds of investors. Value can still be found, though precise sector selection and astute stock-picking are increasingly important,” he said.

“Our market is acutely sensitive to international inflows and outflows and a correction may well occur, but until then we believe most local investors will stay in the market, stay diversified and stay focused on the long term.”

The JSE fell on Friday at noon, following news from China that bank reserve requirements would rise in a bid to curb inflation, but it finished the week slightly firmer.

Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information