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Investment Strategy
Monday, September 1, 2008
Offshore always part of the portfolio

The sickness which was caused by the unwinding of the excesses in the credit, housing and financial markets in America has spread across the globe and nearly no equity market has escaped its contagion unscathed.

The table compiled by Alphen shows the total return of a number of the world’s equity markets this year to date in US$ terms.
As is abundantly apparent, the world’s equity markets are down about 14% so far this year on average, with only the Jordan and Morocco markets up in dollar terms. To some degree, the usual “flight to quality” would have been a defensive position to have taken, with the Word Index of Developed Markets down nearly 14%, versus the more than 20% drop in Emerging Markets generally. Global investors have traditionally (and unsurprisingly) tended to move away from emerging (“riskier”) markets during times of volatility to developed (“less risky”) markets.
The idea that one could indiscriminately pick a developed market instead of an emerging market at these times is clearly not true, with some developed markets (look at Ireland for example) taking a particular beating.
What is further interesting to note is that the markets, which have been trumpeted as the “unstoppable tigers” as recently as last year and into 2008, have seen (the inevitable?) sharp correction from levels which were quite obviously overheated and unsustainable. China, Russia and India are the obvious candidates.
The South African market has fared about in line with the Emerging Markets Index, and about in line with our major trading partners, Europe and the UK. In dollar terms we are down about 19% YTD, but for the rand investor the picture is a bit rosier at -5.25%.
Looking at the table again, it is clear that there are a multitude of drivers all acting in concert throughout the world simultaneously to determine what the equity returns will be in any particular market, region or currency.

Looking at what the world’s equity markets have done this year might frighten investors, but they should take comfort that such volatility is completely normal and necessary for the generation of sustainable long-term real returns. In addition, 2008’s setbacks on global equity markets need to be seen in the context of the extraordinary returns of 2003 through 2007. Equities (both domestic and global) remain a vital cog in an investor’s growth engine and an appropriate weighting therein should be maintained over time.
Someone asked us the other day if now was “a good time” to invest offshore. We said that we think that for the long-term investor who is looking for sustained capital growth, it is always a good time to invest offshore. The difficulties in picking which offshore market(s) to be invested in from time to time are obvious and we would always recommend a diversified exposure to the global equity markets and asset classes.

Copyright © Insurance Times and Investments® Vol:21.8 1st September, 2008
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