This month has been a turning point in the global market. Pessimism has returned and some would say with good reason.
Europe is undeniably in a recession which does not bode well for its trading partners, including South Africa. Couple this with a new socialist French president who is fundamentally opposed to the austerity measures supported by his predecessor and is instead calling for growth stimulus… or in fact for Europe to borrow its way out from under its incredible debt burden.
In Greece yet another interim election has passed, with the incumbent pro-austerity government losing a staggering amount of support to young smaller socialist and “green” parties who themselves are planning to form a coalition in protest of the austerity approach.
On the other side of the coin we have Chancellor Angela Merkel who has stood firm in her resolution that austerity, while a bitter pill to swallow, is the only effective medicine against the debt problems Europe face.
China’s above 10% growth rate, that the world economy has become so used to, seems already to be a thing of the past. The Chinese government’s official targeted growth rate has now decreased to 7.5%. While this still sounds wonderful compared to the developed markets, one has to appreciate the significance of this decrease for the People’s Republic of China.
On the plus side (and yes there is a plus side) where there is pessimism and uncertainty there is opportunity. Active fund managers are finding excellent stocks with strong balance sheets and finding them at massive discounts. These stock prices will follow the sentiment of the market where they are listed even though their earnings and business models may be all but completely detached from the factors that impact these markets.
The Euro has also delivered an interesting result. While the Euro has depreciated due to the weak economies of the Eurozone’s woes, it has not weakened enough to truly assist these countries in attaining growth and combating their debt troubles. The stronger economies of the Eurozone have been treated to a weaker exchange rate and are finding their goods far more competitive in the global markets, an excellent case in point would be the German car manufacturers.
For the unit trust investor however this is the time to bite the bullet and stay the course. Your fund managers are finding a wealth of opportunity in the global financial markets. While times may be uncertain, and succumbing to fear may be tempting, this is the time when the long term strategies you have in place really prove their worth – not only in protecting your capital but in allowing the fund managers to grow it as the opportunities arise.
