Investors have remained bullish about the potential returns on their investments in the South African economy over the next five years, even amid a climate of global economic uncertainty.
However, government bonds and cash have shrunk to become less attractive to investors over the past six months due to their vulnerability to increasing interest rates.
The Schroders Global Investor Study (GIS) 2022 released yesterday, showed that South African investors expect to realise higher returns over the next five years compared to what was achieved in preceding years.
The study, conducted online between February and April, this year surveyed 23 950 investors from 33 locations globally, spanning countries across Europe, Asia, the Americas and more.
Schroders research defines people as those who will be investing at least €10 000 (R183 949) or the equivalent, in the next 12 months and who have made changes to their investments within the past 10 years.
Among them were 400 South Africans, the majority of whom professed to have an “intermediate” level of investment knowledge on a spectrum ranging from “beginner” to “expert”.
The study revealed that the largest proportion (20%) of South African investors expected to realise returns of between 20% and 25% over the next five years, although the same percentage of respondents claimed to have made between 15% to 19% total returns on average over the past five years.
Schroders South Africa country head, Kondi Nkosi, said this was indicative of a “decidedly optimistic outlook held by South African investors when compared to their global counterparts.
“This could be attributed to the better-than-average expected performance of the country’s domestic market in 2021,” Nkosi said.
“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.”
Nkosi pointed to the specific emphasis that the 2022 GIS placed on how local investors were responding to global economic phenomena, such as interest rate hikes and rising inflation.
In South Africa, where inflation hit a 13-year high during the latter part of the year, the findings of the survey were particularly compelling.
At least 43% of respondents indicated that they had changed their investment strategy in light of rising inflation, 42% expressed their intention to do so in future, and only 14% indicated that they had no intention of making any significant changes to their portfolio.
In terms of how South African investors aim to respond to rising interest rates, 66% indicated that “saving more and spending less” was high on the agenda, followed by 57% who chose “investing in crypto-currencies such as Bitcoin and Ethereum”, and 55% whose preference was repaying debt faster.
Subsequently, among the top investment types that have become less attractive over the past six months were government bonds and cash (or cash equivalents) – both of which were vulnerable to increasing interest rates.
According to the GIS, in the years to come, half of South African investors will feel forced to take on more risk in order to meet their return expectations while 27% claim to have made investment decisions under pressure that they later regret.
Nkosi said these findings pointed once again to the need for South Africans to seek expert advice on what has become an increasingly complex investment landscape.
“This is particularly true in South Africa where 53% of investors believe that the performance of their investments has a direct impact on their mental wellbeing,” he said.
“In future, enlisting the assistance of an industry expert may, therefore, have far-reaching benefits, and is one of the most effective ways to ‘sense-check’ your investment decisions before making major changes based on limited knowledge,” Nkosi said.
BUSINESS REPORT