Uncertain investment climate: Local investors less likely to go it alone

Local investors are less likely to go it alone in the current uncertain investment climate and will rather seek expert advice. They also expect to realise higher returns over the next five years.

According to the Schroders Global Investor Study 2022, the majority of investors, regardless of experience, will enlist the help of a financial adviser or lean on the advice of fund managers. The study surveyed more than 23 000 investors from 33 global locations, including 400 South Africans. The majority of participants have an intermediate level of investment knowledge on a spectrum ranging from beginner to expert.

The largest proportion (20%) of South African investors expect to realise returns of between 20% to 25% over the next five years, although the same percentage of respondents claimed to have made between 15% to19% total returns on average over the past five years that indicates a “decidedly optimistic outlook held by South African investors when compared to their global counterparts,” Kondi Nkosi, country head at Schroders South Africa, says.

He says this could be attributed to the better-than-average expected performance of the country’s domestic market in 2021.

“In the context of growing global instability, as well as the political shifts that are underfoot in South Africa, this position may change or it may very well come to characterise the inherently positive mindsets of South African investors going into 2023.”

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Turning to financial advisers for advice

The study also shows that even the most knowledgeable investors in South Africa are turning to financial advisers to help them navigate the prevailing uncertainty, with 44% of beginner or rudimentary investors indicating that they would be more likely to seek the advice of a financial adviser and 50% of intermediate investors and 43% of expert or advanced respondents claiming the same.

Similarly, 47% of respondents indicated they are finding either actively or passively managed funds more attractive than six months ago and Nkosi says this is a clear indicator of a parallel rise in uncertainty on how to navigate what, for many investors, is uncharted territory and a rise in the confidence people place in financial advisers’ expertise.

“We have to appreciate the unique and unprecedented position that South African investors find themselves in: caught in a climate of geopolitical instability and a local landscape that is undergoing a historic level of change. The role of financial advisers will become even more important going forward in helping South Africans to make clear and informed decisions that will reap long-term benefits.”

The study also placed specific emphasis on how local investors respond to global economic phenomena, such as interest rate hikes and rising inflation.

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Local investor response to rising interest rates and inflation

In South Africa, where inflation hit a 13-year high during the second half of the year, the findings were particularly compelling, with 43% of respondents indicating that they changed their investment strategy due to rising inflation, 42% expressing their intention to do so in future and only 14% indicating that they had no intention of making any significant changes to their portfolio.

South African investors also indicated they have plans to respond to rising interest rates, with 66% indicating that saving more and spending less was high on their list of priorities, followed by 57% who chose investing in crypto currencies such as Bitcoin and Ethereum and 55% preferring to repay debt faster to save on interest.

Therefore, the top investment types that became less attractive over the last six months were government bonds and cash or cash equivalents which are vulnerable to increasing interest rates.

The study also showed that half of South African investors will feel forced to take on more risk in order to meet their return expectations in years to come, while 27% claimed they made investment decisions under pressure that they later regret.

“These findings once again point to the need for South Africans to seek expert advice on what has become an increasingly complex investment landscape, particularly in South Africa where 53% of investors believe that the performance of their investments has a direct impact on their mental well-being.”