As stock markets around the world, including South Africa’s, again reach record highs, one could be forgiven for thinking that all the troubles brought about by the financial crisis, which began some six years ago, are now firmly behind us. Whilst it is encouraging to see US economic growth seemingly back on track and even Europe starting to show signs of a sustained turnaround, there are still concerns about global emerging markets, particularly China’s significant slowdown and the geo-political issues surrounding Russia and Ukraine as well as tensions between China and its neighbours over disputed territory. Exactly what the economic effects of the latter will be remains to be seen.
We have now entered a period of rising interest rates and tightening liquidity which will have an effect on markets. New US Federal Reserve Chair Janet Yellen has attempted to reassure markets by suggesting that such increases are likely to be delayed for a while yet – especially during the Fed’s tapering back on its “Quantitative Easing” programme.
The eventual rise in interest rates, which has already begun in some countries including SA, may signal a more volatile period for markets. Certainly the domestic property market, which might be reaching bubble proportions specifically in the UK, could be particularly vulnerable.
Recently, asset manager Stanlib issued this general cautionary:
The SA stock market is expensive.
Offshore equities still offer value.
Domestic bonds and property are expensive.
Expect lower returns for the foreseeable future across all asset classes.