Your investments
Time for a view above the clouds
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f you are reading this, you must be flying and perhaps you have been yearning for a while to see the world from a different angle. Covid-19, and yes I won’t use that word again in this article, has clouded much of our 2020 vision.
One of the things that remain constant is that we have certain dreams and obligations that we want to meet and our investments need to work for us. This is the case for people and businesses all over the world. What I’m trying to say is that Namibians and people living in other countries are all in the same boat (or plane in this case). The chart below gives us some very interesting clues as to what we can expect. The black line is what happened to interest rates in the US and the yellow lines are how the market expected rates to develop since 2005. Since the Global Financial Crisis of 2008/2009 interest rates have been low relative to history, but the market now finally expects interest rates to be lower for longer. I’m showing you US interest rates, as – although the world this time around got a “cold” when China sneezed – the world usually (at least since 1945) got a cold from the US. As I mentioned, we are all in the same boat and low rates for US investors mean higher probabilities of not meeting those dreams or obligations. What makes this worse is the potential for inflation (prices) to eventually pick up, when all of this excess money that has been created, chases the same amount of goods and services as the economies start to slowly open up again. The problem with inflation is that it is a very subtle tax that slowly steals away the purchasing power of your assets and it is therefore imperative to
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achieve a return above inflation (a real return). If rates are close to zero (or even negative in Europe) you will achieve a negative return once you factor in inflation. US 10 Year Treasuries are at 220 year lows. Naturally, investors have been looking at other asset classes that can provide a relatively better return than interest bearing assets such as bonds (in developed markets) and it should be no surprise why equity markets (especially, for example, the S&P 500 index in the US) has gone to record levels relative to history. One can argue that certain parts of the market have benefitted the most (for example, the top 5 “technology” stocks of the S&P 500 is ± 23% of the whole index) but the main point is that the excess money is looking for returns in a world of low interest rates. It is also interesting to note that the traditional way of dealing with inflation is to increase interest rates. This time around many would argue (and that is exactly what the chart is telling you) that the US cannot allow rates to rise significantly as their debt levels are too high (in other words, they simply cannot afford it if economies are not growing). Hence, we can expect a loose monetary and fiscal policy to continue for a while. This has the potential to create a global debt crisis, but no one can really predict when and how this might unfold. As a Namibian you rightly should be diversifying your assets against country-specific risks, but you might be ignoring South African and Namibian opportunities at your own peril, while the rest of the world (which has the same need to increase returns) is starting to look for opportunities on our doorstep. These markets are very small compared to the rest of the world, and any slight rotation (literally
