The year began amidst a raging bull market. Global equities have made up all the post-pandemic losses and are up 85% (as at 7 May 2021) since their March 2020 lows. Yet, our data shows many investors have missed the bull run altogether or are significantly underinvested, waiting for the ‘right’ opportunity to re-enter. Those who did stay invested through the volatility or re-entered the market in 2020 have a slightly different problem (‘Should I sell?’).
It is safe to say that most of us belong to one of these categories. History shows there are time-tested methods to deal with these challenges and earn a respectable return over the long term.
To tackle the last problem first (‘Should I sell?’), we believe it would be imprudent for investors who have ridden the bull market thus far to cash out. We do not expect a major bear market to develop, at least in the next year, given accelerating global growth and corporate earnings expectations and extremely loose policy settings. We expect economies and businesses to gradually return to normalcy by the end of the year as the pace of vaccinations picks up worldwide.
Based on decades of market history, it is hard to make a case for an equity bear market without an accompanying economic recession. Therefore, the risk of trying to time when to exit the market before any short-term correction and re-enter at the bottom are greater than staying invested (since the investor could lose some of the best days in the market by staying out). For this group, the best course would be to ensure that they stay well-diversified across asset classes and sectors and rebalance their portfolios if they have strayed significantly away from their risk tolerance.
Cost of inaction
For those who have stayed out of the market before or after the pandemic, the challenge of when to get back in is seemingly much harder, given that equities are now at record highs and there are increased concerns about a short-term correction. Often, their hesitation stems from a desire to perfectly time their re-entry. In our experience as wealth managers, this is the single most common investment mistake.
For this group, the salient point to consider is the cost of inaction. A simple diversified portfolio (50% global stocks and 50% global bonds) for buy-and-hold investors has returned close to 6% per year over the past 10 years, even after taking into account six 10%+ equity market pullbacks, including the 34% correction at the height of the pandemic in March 2020. At that rate of return, USD10,000 invested a decade ago would have built a roughly USD18,000 nest egg. An equivalent savings deposit paying, let’s say, 1% interest would have grown to only about USD11,000, not even keeping pace with inflation.
The rules of investing
This example brings us to the seven key rules of saving and investing wisely:
- Prepare an investment plan based on your financial goals, risk tolerance and time horizon;
- Set aside funds for short-term exigencies in cash;
- Invest most of the remaining funds (say 80%) in a core portfolio broadly diversified across asset classes, geographical regions and industry sectors. This will help limit the downside from unexpected events (because they will happen over our lifetime!);
- Stay invested through market cycles, since time and the miracle of compounding returns is your friend;
- Rebalance the portfolio at regular intervals (say twice a year) to bring it back to your risk tolerance;
- Use the remaining funds (at most 20%) – let’s call it ‘funny money’ – for short-term trading (for those who want the thrill). Make sure this is based on sound research and not the latest fad, and done with a cool head – not be too greedy at the top and panicky at the bottom (using stop-losses would help remove personal biases and limit downside risks for this part of the portfolio); and
- Finally – and this is the crucial part – follow the investment plan! Procrastination, as we saw above, is the greatest enemy of the investor.
For some investors, putting all funds to work immediately could be psychologically challenging. For this group, setting up a pre-determined regular investment plan would remove any personal biases. This so- called dollar-cost averaging strategy would help the investor to automatically benefit from any market upside, while allowing the investor buy cheaper if the market pulls back along the away. This strategy could include pre-determined rules to accelerate purchases in the event of larger-than-expected market drawdowns.
In the long run, the market is always a bull. The above strategy should enable the investor to overcome the downturns, mitigate biases and stay in the game. Afterall, we need to get on the bull before we can ride it.
(Marc Van de Walle is Global Head of Wealth Management at Standard Chartered Bank)
African Development Bank Launches AUD$600 Million (USD$463.9 million) Kangaroo Social Bond
The African Development Bank launched a A$600 million (US$463.9 million) 5.5-year Kangaroo bond, marking its return to the Australian dollar bond market.
The transaction, announced on 8 June, was led by Nomura and RBC Capital Markets. It is the institution’s first benchmark Kangaroo since early 2018 and its first in the mid-curve since 2015. It is also the largest AUD trade ever issued by the Bank. More than 30 investors participated in the deal, with a total order book of more than A$775 million, leading to an upsize of the trade from the announced size of A$250-300 million to the final size of A$600 million. These included a strong cohort of Australian investors, while fund managers were the major investor type.
African Development Bank Treasurer Hassatou N’sele said the Covid-19 pandemic had led to a rise in global issuances of social bonds.
“Following on from the ground breaking USD$3.1 bln 3 year ‘Fight Covid-19’ Social Bond we issued in 2020, we’re glad to see that public domestic markets, like the Kangaroo bond market, are now seeing similar development in terms of interest from dedicated ESG investors, which provided additional momentum enabling us to print the largest trade we’ve ever done in AUD”.
The African Development Bank’s social bonds have use of proceeds allocated to projects that alleviate or mitigate social issues such as improving access to electricity, water and sanitation, and improving livelihoods through flood-risk reduction and access to clean transportation and employment generation.
Recent KangaNews data show that the African Development Bank had A$1.75 billion of bonds mature between its 2015 benchmark deal and its most recent. Keith Werner, Manager of Capital Markets and Financial Operations, said 38 per cent of investors in the deal had a socially responsible investment approach and that the African Development Bank intends to issue more social bonds in Australian dollars.
“In addition to the important contribution that socially responsible investors had to the success of this trade, it’s also gratifying to see such a large portion of the investors (41%) were domestic, which is an area where we haven’t seen strong support historically. We look forward to leveraging this momentum and continue evaluating opportunities in the future in this market”, Werner said.
The Australian dollar is the fifth currency in which the African Development Bank has issued social bonds since it established the program in 2017, following deals in euros, US dollars, Norwegian kroner and Swedish kronor.
In December 2016, the African Development Bank launched its inaugural Kangaroo Green Bond. This transaction followed successful outings in USD and SEK Benchmark formats.
A Kangaroo bond is a foreign bond issued in the Australian market by non-Australian firms and is denominated in Australian currency. The bond is subject to the securities regulations of Australia. A Kangaroo bond is also known as a “matilda bond.”
Stock Market Gains N230 Billion Last Week
The Nigerian Exchange Limited gained N230 billion last week as more stocks closed in the green.
The market value of listed stocks and the Nigerian Exchange Limited All-Share Index expanded by 1.11 percent to close the week at N20.41 trillion and 39.156.28 index points, respectively.
Investors traded 1.06 billion shares valued at N12.8 billion in 17,854 transactions during the week, against a total of 1.08 billion shares worth N9.55 billion were traded in 17,933 transactions in the previous week.
In terms of volume traded, the financial services industry led the activity table with 714.677 million shares estimated at N5.95 billion traded in 9,718 transactions. Therefore, contributing 67.53 percent and 46.38 percent to the total equity turnover volume and value traded, respectively.
This was followed by the consumer goods industry with 97.18 million shares estimated at N3.29 billion in 3,006 transactions.
In third place was the ICT industry with a turnover of 75.99 million shares valued at N583.72 million in 679 deals.
The top three most traded stocks (measured by volume) were Zenith Bank Plc, Sterling Bank Plc and Fidelity Bank Plc. The three accounted for 261.34 million shares valued at N2.71 billion and traded in 2,862 deals. The top three most traded equities in the week contributed 24.70 percent and 21.13 percent to the total equity turnover volume and value.
During the week, 35 stocks closed in the green, against 33 posted in the previous week. A total of 36 equities rose as against 33 equities in the previous week, while 89 equities remained unchanged as against 94 in the previous week.
Nigerian Equities Market Establishes Bullish Trend
The equities market in Africa’s largest economy, Nigeria, extended its bullish trend on Thursday as the Exchange closed in the green amid rising renewed interest in the market.
Investors traded 158.366 million shares valued at N2.236 billion in 3,330 transactions during the trading hours of Thursday.
The Nigerian Exchange Limited All-Share Index gained 0.10 percent to close at 39,210.1 index points while the market value of all stocks grew to N20.437 trillion on Thursday.
The renewed interest followed weeks of bearish trends that trailed the market amid a broad-based profit-taking that encompasses the market after a prolonged bullish trend recorded in 2020 and Q1 2021 despite COVID-19.
Link Assurance led gainers with 9.09 percent to settle at N0.60 per share. This was followed by PZ’s 7.14 percent to close the day at N6 per share. See the details below.
|LINKASSURE||N 0.55||N 0.60||0.05||9.09 %|
|PZ||N 5.60||N 6.00||0.40||7.14 %|
|CHAMS||N 0.20||N 0.21||0.01||5.00 %|
|MAYBAKER||N 4.00||N 4.20||0.20||5.00 %|
|UNILEVER||N 12.10||N 12.70||0.60||4.96 %|
|CWG||N 1.25||N 1.13||-0.12||-9.60 %|
|CHIPLC||N 0.78||N 0.71||-0.07||-8.97 %|
|ABCTRANS||N 0.40||N 0.37||-0.03||-7.50 %|
|WAPIC||N 0.59||N 0.55||-0.04||-6.78 %|
|MBENEFIT||N 0.46||N 0.43||-0.03||-6.52 %|
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