Real Estate Investor Magazine South Africa May 2016 | Page 17

The South Africa Connection

John Loos, the household and property sector
strategist at FNB, said the the possible bursting
of a Chinese property bubble together with the
weakness in other areas of the Chinese economy
could have “significant potential implications” for
South Africa’s residential property market.
Loos believed that what happened in China’s
housing market along with other areas of its
troubled economy was “the big news to South
Africa’s economy and thus its own residential
market at present“, rather than Greece’s financial
crisis.
He said South Africa’s household sector had
reduced its vulnerability to shocks somewhat
through lowering its debt to disposable income
ratio to 78.4 percent from 88.8 percent in early
2008.
But Loos said foreign buyers of South African
residential property were a relatively small
group and Chinese contingent of this group was
believed to be far smaller. He added that a “China
hard landing scenario” did not appear likely to
be a 2008-style shock, which had involved a big
consumer price index (CPI) inflation surge due
to the combination of a global oil price shock, a
global food price inflation shock and significant
rand weakness.
Loos said this time the risk of such a big
inflation shock to where South Africa’s CPI
inflation peaked in double-digits appeared a little
less because the oil price shock risk had been
lowered by big investment in supply capacity in
recent years. That would imply perhaps less risk
of interest rate hiking, barring a massive rand
weakening.
So, if China is looking negative, what are
the recent positives to make us think that safe
haven is here? South African equities markets
rallied for their best week since May 2009 in
February as a wave of buying by foreign investors
reflected positive sentiment toward emergingmarket assets amid speculation that China will
boost stimulus to its economy. Growth was not
even – the platinum mining index surged 35%,
but the rand only 4.9%, though the most since
December. There needs to be more certainty on
economic policy issues before investment into
property assets is likely to start from China in any
meaningful way, although, notwithstanding the
political risk, from an asset allocation perspective,
South Africa is a very deep, developed, and liquid
market. If you are prepared for a little more risk
and volatility, it’s an obvious long-term choice.
www.reimag.co.za

5

Ways To Survive
A Market Downturn

1

Reevaluate your portfolio
Do the stocks you hold continue to meet your investment criteria?
Stocks that no longer meet strong investment criteria are likely to
decline the most in a market fall. By selling them you increase your
cash position, which can be used for the purchase of new stocks at
attractive prices once the decline is over.

2

Make a list of stocks or funds you want to buy
A declining market can offer the opportunity to add to your longterm investment portfolio at a lower price point. The historical
stock market trend is upward, and occasional bull markets are an
opportunity to buy stocks while they are ‘on sale.’ As Warren Buffett
observed, it is profitable to be greedy when others are fearful.

3

Consistent Investing
Make sure you continue to invest regularly throughout a market
downturn, which may last a month or it might last a year or
more. By letting your cost average into investments throughout the
downturn, you’re guaranteed to be buying at low points compared to
the pre-crash highs. Throughout your investing career, there are going
to be countless corrections and crashes. Sticking with your investments
in good times and bad makes you an investor and not a mere market
speculator or day trader.

4

Stay diversified
A portfolio allocation with 60 percent stocks and 40 percent
bonds is an old benchmark and starting point for portfolio
diversification. Check out stock-and-bond mixes in a target-date fund
based on your age to get an idea of appropriate allocations for your
time horizon. Determine ahead of time what sort of decline you can
tolerate, and don’t invest in such a large percentage of stock that you
will panic in a decline.

5

Invest Only What You Can Afford To Lose
Investing is important, but so is eating and keeping a roof over
your head. It’s unwise to take short-term funds (i.e. money for
the mortgage or groceries) and invest them in stocks. As a general
rule, investors should not get involved in equities unless they have an
investment horizon of at least five years, but preferably more - and
they should never invest money that they can’t afford to lose.

RESOURCES
The Wall Street Journal, Forbes, Horizon Valuations