Post-election jitters present opportunities to beat inflation

Donald Trump has won the US presidential election, riding a wave of anti-establishment sentiment and the backlash against globalisation, and in a Brexit-like manner, collapsing the status quo. Republicans also won a majority in both the Senate and the House of Representatives.

Asian markets collapsed on the news of Trump’s election victory, led by the Nikkei Stock Average, down about 5%, and the Hang Seng, which dropped 3%. This is due to the fact that markets had priced in a Hillary Clinton win.

In South Africa, the JSE’s Gold Miners’ index soared 11% this morning, opposing the general downtrend which saw the All Share Index drop 1.43% as Donald Trump won the US presidential election. Sibanye Gold was the biggest winner, gaining 12.8% to R41, followed by Harmony which gained 11% to R46.64, Gold Fields gained 10.66% to R60.39. Spot gold rose 3.25% to $1,318/oz while the rand lost 2.8% to R13.55/$. Banks were affected most by the news of the new president elect. The JSE’s banking index fell nearly 3%, led by FirstRand, which fell 3.3% to R50, followed by Standard Bank, which fell 3.4% to R146. The Coreshares S&P 500 exchange-traded fund, which started trading on the JSE a few days ago fell 2.53% to R28.12 ahead of the opening of US markets.

During the course of history, and most recently with the Brexit result, we have seen how markets can experience short-term volatility when they react to political, economic and social news. In recent decades globalisation has resulted in the fact that socio-economic and political events are not just contained within the geographical boundaries of a country, but are felt across the world. Therefore, as predicted, Donald Trump’s victory has sent global markets into turmoil, increasing volatility and resulting in investors retreating to a “risk-off” stance and a general “flight to safety” mentality.

Looking back at the All Share Index over the last 56 years, there have been events that have negatively affected the stock market over short periods of time. The general trend, however, has been an upward one over the long term. It is during these shorter periods of uncertainty that the natural predisposition of investors would be to react immediately and seek safe haven assets and possibly move to cash. The reality, however, is that it is precisely in these moments that investors need to be encouraged to hold firm, remembering their long-term investment goals, as we believe that such events actually create investment opportunities.

If we focus on the All Share Index over the last decade we can see that although the path has not always been smooth, the South Africa stock market actually produced a return of 8.8% in capital growth and an extra 3.2% supplied by dividends, totalling an annualised return of 12%, implying a return of 6% ahead of current inflation over the longer term. Therefore, once again reiterating that although volatile markets can create levels of uncertainty and can be hard to endure when returns are declining, they also create an opportunity to achieve higher inflation-beating returns, when the markets do turn.

At SMM we remain committed to our investment process.  We believe that the key is to ensure that our underlying strategies and the fund managers that employ these strategies are able to harness their skills to weather you through these volatile times so as to create longer-term wealth when these opportunities arise. Our tactical view remains defensive, for now, but still includes longer-term risky assets that aim to meet client’s long-term investment objectives.