by clicking the arrows at the side of the page, or by using the toolbar.
by clicking anywhere on the page.
by dragging the page around when zoomed in.
by clicking anywhere on the page when zoomed in.
web sites or send emails by clicking on hyperlinks.
Email this page to a friend
Search this issue
Index - jump to page or section
Archive - view past issues
Expat Investor : January February 2009
INVESTMENTS Finding cash havens DAVID BULTEEL, EXECUTIVE DIRECTOR, RENSBURG SHEPPARDS INVESTMENT MANAGEMENT The old market saying that ‘the only thing that goes up in a bear market is correlation’ has never been more true than in 2008. All asset classes, barring short dated gilts and cash, have suffered to some extent as the much documented credit crunch has led to massive global deleveraging and a flight to safety. Even gold, the most traditional hiding place, has fallen sharply from its peak of $1,000 in March 2008. With volatility at unprecedented levels investors could be forgiven for wondering whether they shouldn’t just keep their cash under the bed and forget about the world of investments altogether. 8 EXPAT INVESTOR ? However, despite some of the more bearish press reports, comparisons with the 1930s are overdone. The Bank of England is forecasting a fall in UK GDP of 2% in 2009. During the Depression the US economy contracted by 25% in real terms. The threat of deflation seems to be at the heart of comparisons with the 1930s, however the fall in inflation should not be confused with deflation. Inflation will continue to decline as it reflects the falls in the oil price and consumer spending. However, concerted cuts in interest rates and the pumping of huge amounts of liquidity into the January/February 2009 financial system will create a more inflationary environment as the world economy moves into recovery. What all of this means for investors is that cash may not prove to be the best place to put their capital. As anybody who can remember the 1970s will know, cash has not always proved the safe haven it is believed to be. The falls that we have seen means that investors are now being handsomely compensated for taking on risk. Equities are yielding more than gilts for the first time since 2003, corporate bonds are pricing in default rates far in excess of any that have ever materialised and the return on cash will be expatinvestor.com eroded by further interest rate cuts. I believe now more than ever that investors must ensure that their investments are properly structured. This is encapsulated in the three tenets of investing; diversification, quality and time. Whilst equities have historically delivered the best long-term returns, all portfolios should include exposure to a range of asset classes to reduce volatility. Recent history also demonstrates the need to diversify across different sectors, as the TMT bubble vividly demonstrates the dangers of chasing the latest fad. Investors are becoming increasingly focused on the quality of their investments. The strength of a company’s balance sheet will determine both its ability to survive in this time of restricted credit and to finance growth when economic conditions improve. Finally, every investor needs to match their appetite for risk with their need for access to their capital. Only funds that can be committed for the long term should be allocated to the more volatile asset classes. In this way a properly structured, global portfolio will continue to provide investors with the best long-term returns in spite of the bouts of volatility that periodically afflict markets.
March April 2009