While there are surprises through the course of each year, the global economic landscape tends to change slowly and predictably. For South Africans, looking at the economic growth in our country, we can expect more of the same this year, a low-growth environment forcing investors to take further steps to find returns and protect their wealth.
What becomes crucial in such an environment is good advice. We are all busy with demanding jobs and don’t necessarily have the time to constantly research global market trends, which means we need to rely on trusted advisors to provide us with the information we need to make strategic investment decisions.
Here are some of the key trends that we foresee will transpire in 2020:
2020 will be the year of educating the consumer on the difference between wealth creation and wealth protection. It will also be the year that financial planners will need to provide justified answers to the “why” question when it comes to making any moves. Access to information will be a key component of financial advice as customers become more concerned about the growth and preservation of their assets, and financial services companies will be measured by how quickly they can transfer information between the provider and client.
In South Africa, this falls under the Treating Customers Fairly regulations which were introduced to provide greater clarity for investors in collective investment schemes. Transparency and availability of information allows both advisors and customers to make the best possible choices.
Marietta Du Preez, General Manager of Ecsponent Financial Services (EFS), says many customers have been resistant to the changes which have taken place with the Fourth Industrial Revolution. “The first important step is to realise that the game has changed. There are basic trends we have already seen implemented in developed markets like the US, UK and Australia, and bit by bit South African institutions are following suit. These changes will have a significant impact on our industry and the way we do business.”
Du Preez says customer expectations are driving a paperless environment and the ability to do everything online. “Innovative technology and digitisation means everything happens more quickly and more effectively. Products are developed to last longer, which means that they do not need to be replaced as often. This allows providers to streamline their offering, reduce the number of products and provide greater transparency on fees and performance. But it has also brought about greater competition, because it is now easier for consumers to compare and switch products, even from foreign providers.”
For financial services providers, this has meant a constant process of product development and enhancement to keep abreast of functionality. Technology has enhanced productivity, which can be seen at banks like Capitec. “The banking industry has no choice but to focus on technology to deliver a cheaper, faster and better service. Bank leaders and employees have had to adapt their way of thinking to stay relevant. Information now has to be available to clients quickly and at all times.”
The Twin Peaks model of regulating the financial services sector in South Africa will not only focus on treating customers fairly, but will refine the focus of specialised regulatory bodies and define enforceable penalties for non-compliant product providers, says Du Preez.
“We are fortunate that, by creating this model, we have been able to learn from the mistakes and best practices of developed countries,” she says.
Floris Slabbert, Director at EFS, believes there could be a relief rally in the South African economy late in 2020. “There is a lot of motivation for the South African Reserve Bank and Treasury to focus on growth. With inflation and growth rates as low as they can or should go, the only way is up, from a fiscal intervention point of view.”
Slabbert says that with the US-China trade war drawing to a close, global growth will be revived and yield curves on fixed-interest products should steepen. “Yield curves need to rise if bonds are to continue offering a defensive function in our portfolios.”
Global political instability has driven the gold price higher, and Slabbert believes this could be a valuable diversifier in 2020. “Despite headline noise, most emerging markets should continue to consolidate macroeconomic stability gains they have made over the last few years. Developing economies have chosen not to follow the normal pattern of raising rates in response to slowing growth and interest rate cuts in the US – in contrast to similar episodes in the past.”
When it comes to the asset class of choice for most retirement investors, equities, Slabbert says macro-level uncertainty should moderate, with trends in equity markets reversing and investors shifting back towards cyclical stocks. In short, this could bring about some positivity.
“In terms of portfolio construction and strategy, divergent valuations between expensive US stocks and relatively cheap Asian stocks are offering an opportunity to build strategic equity exposure in Asia. According to a recent report, robust consumption in Asia should support steady growth through 2020. Ultimately, investors should stay focused on diversification, more secure options and less volatility. As ever, your financial advisor should be playing an important role in portfolio construction and justification,” Slabbert says.