Thinking about the world events over the past few months it feels like we’ve moved from one major crisis to the next. Just as COVID seems to be coming under control we now have Russia invading Ukraine. To top that off, many countries around the world are experiencing a surge in inflation, which is most often accompanied by rising interest rates which negatively impacts investment markets and hence long-term savers.
It’s understandable then, that many people are either enormously concerned or even panicked about their investment portfolios. In times such as these, our instinct is that we must do something. That “something” is often to move one’s investments into the safety of cash.
Economic performance around the world
| REGION | GDP Growth rate | Inflation | Interest Rates |
| Botswana | 8.4% (Sep-21) | 10.6% (Feb-22) | 3.75% (Feb-22) |
| USA | 5.5% (Dec-21) | 8.5% (Mar-22) | 0.5% (Mar-22) |
| Eurozone | 4.6% (Dec-21) | 7.5% (Mar-22) | 0.0% (Mar-22) |
| UK | 6.6% (Dec-21) | 7.0% (Mar-22) | 0.75% (Mar-22) |
| China | 4.0% (Dec-21) | 1.5% (Mar-22) | 3.7% (Mar-22) |
However, there is a saying that goes “the folly of one man is another man’s fortune” – and therefore along with the bad, often comes good. For example, we are seeing surging commodity prices which is a strong positive for African countries. As the world places sanctions on Russia, and supply chains tighten, there is a need for countries seeking goods that are usually supplied by Russia, to get them elsewhere. This is no more evident that with our largest export, namely Diamonds. The two markets globally with the largest diamond reserves are Russia and Botswana. Therefore, as unwanted, and as unpleasant is the Russian conflict with Ukraine, these types of events around the world provide opportunity for others. Botswana is very well positioned to benefit due to it’s positioning in the world diamond market. Another well-known saying also rings true “never let a crisis go to waste”.
On another positive note we have seen what looks like the start of a more sustained recovery in the Botswana stock market, which has been on the rise for a year now. This comes after a very weak period over more than 5 years. Shares, or equities as many refer to them, are a crucial part of an investment portfolios for long-term savers and its encouraging to see the local market again providing good returns. Globally, investment markets will no doubt continue to be impacted by the Russian-Ukraine war, as well as rising inflation, but shares are still favoured over bonds and cash for long-term savers, and for those that save regularly, times like these can provide an opportunity to invest at lower prices meaning better long-term growth, than if one were to be investing at a market peak. If you are retired and drawing a pension, then rising interest rates mean that you may get more interest each month as interest rates rise.
How have financial markets performed over the last 12 months to March 2022?
| 1 Year Botswana Local shares (TR) | 1 Year Botswana Local Bond Performance (Fleming Bond Index) | 1 Year money market (BWP) (Overnight Call rate +2%) | 1 Year MSCI ACWI (BWP) | 1 Year MSCI Emerging Markets | 1 Year change Botswana Pula vs US$ | |
| 21.35% | 1.76% | 9.19% | 10.85% | -7.56% | 3.3% |
Most of us who have investments for the long-term via something like a unit trust portfolio will have exposure to a combination of different assets classes and have local and global exposure. What this means is that you will be well diversified and although your portfolio will experience price up and down swings, there isn’t much risk that you will lose money permanently, as diversified portfolios provide solid growth over the fullness of time and any dips experienced will inevitably recover.
We always advocate sticking to your investment strategy and therefore staying invested, but it is very a good idea during these times to seek professional advice to get reassurance but also to review your investment strategy and hopefully to confirm that regardless of the turbulence of global events and market volatility, you remain on track to meet your saving goals.
Botswana Retirement Fund Column is sponsored by Strategic Wealth
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Strategic Wealth is a Botswana retirement funds investment specialist. The firm is 100% citizen and female owned and committed to improving retirement fund knowledge in Botswana. Please send all comments or questions to: info@strategicwealth.info.
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DISCLAIMER: While every effort is taken to ensure the accuracy of the information used in this column, Strategic Wealth accepts no liability for errors or omissions. Information is provided for general educational purposes and is not to be treated as financial advice. Investors should consult professional advisors before taking any action. Not all statements necessarily reflect the views of Strategic Wealth.
