Reflections from South Africa

18 March 2024

Please note: These insights do not constitute advice about investing or real estate.

Our colleagues Alexander Joshi (Head of Behavioural Finance) and Stephen Moroukian (Product and Proposition Director, Real Estate Financing) recently hit the road, bringing their professional insights to Johannesburg, Durban and Cape Town. Here are the highlights as they reflected on the global economic outlook, investor behaviour and the real estate market. 

The global economy – opportunities amidst uncertainty

Despite a strong start to 2024, the global economy is expected to experience a slowdown in growth, with forecasts suggesting a decline from 3.2% in 2023 to 2.9% in 2024. But there is better news on inflation, which is likely to keep falling – potentially paving the way for central banks to cut interest rates later this year.

For anyone looking to navigate the current economic climate, it’s important to build a solid investment plan with a long-term focus. Spreading investments across different asset classes (think about not putting all your eggs in one basket) is still key for managing risk. And even with the inevitable bumps in the road, for those who’ve done their homework, you can still find opportunities to grow and preserve wealth (albeit nothing is risk free when investing).

Investment strategies for uncertain times

The first challenge investors face? Beating inflation. You want your money to hold its value (and ideally grow) over time, but that can feel especially tricky during uncertain periods. Having cash on hand can feel like a security blanket – but remember, inflation constantly eats away at its purchasing power.

Yet, conversely, staying invested through market ups and downs is often crucial for achieving long-term financial goals and growing wealth. Patience is very often a virtue in investing. 

While history is never a guarantee of future performance, past trends provide useful context. Even periods of wild market swings haven't necessarily derailed investors from reaching their goals, provided they maintained a long-term perspective and appropriate diversification. Another key takeaway: time in the market is often more valuable than trying to time the market, which can be almost impossible to get right (even for professional investors).

Diversification across asset classes should never be under-estimated. By spreading your investments around, whether across assets, sectors, regions and more, you manage risk and can avoid making emotional decisions based on short-term market ups and downs. 

It’s also worth reflecting on the pitfall of ‘home bias’, which is the tendency to favour local investments and markets (over international options). It can feel safe staying closer to home with your assets, but it can also limit your growth potential, and might hurt your returns in the long run.

Behavioural finance and better decision-making 

By becoming aware of your own quirks, you can avoid letting emotions or fear cloud your judgment – instead, keeping your long-term goals firmly in sight, and equipping you with the tools to make more informed investment decisions.

Behavioural finance also goes beyond just the data. It gives you the skills to handle the inevitable emotional rollercoaster of investing. Imagine the market takes a dip – panic may set in, tempting you to sell everything. But by understanding your biases, you’re less likely to make rash decisions (even in the face of adversity), which can ultimately lead to better returns over the long run.

So, how do you put this into play? It’s important to have a clear investment plan and to build a rock-solid portfolio. When investing, you’re never immune to risk but having strong foundations can help you ride out the inevitable market bumps and stack the odds more in your favour as you look to keep your money growing steadily over time.

UK real estate – a shifting landscape

Rising interest rates (in the battle against inflation) have been squeezing homeowner budgets in the UK and around the world, particularly for those with mortgages or fixed-rate deals coming to an end.

This pinch is being felt in the UK rental market, too, with landlords exiting – possibly due to the changing interest rate environment. Longer-term investors who bought around the millennium are also cashing out, further shrinking the pool of rental properties.

Homebuilding is also facing headwinds. Material and labour costs are on the rise, and some parts of London have stricter planning regulations. The pandemic shuffle isn't helping either, with some homeowners who fled to the countryside clinging to their London properties, thus tightening supply even more.

The prime regional market, meanwhile, has seen some impressive gains, but growth is slowing. This might be prompting some owners to consider selling and locking in those profits – with post-pandemic preferences for different locations, changing family needs, and tax considerations all potentially playing a role in their decisions.

And there’s no denying the UK housing market faces hurdles at the moment, including: affordability concerns, shifting investor behaviour, limited new builds, and a shrinking pool of existing properties. 

The good news is that the UK's fundamentals remain rock-solid. Top-notch education, healthcare, legal systems, and a booming science and technology scene continue to attract international buyers. Add in a housing shortage that's likely to stick around in the short to medium term, and it all suggests the potential for continued demand and resilient market performance.

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