Finding opportunity in times of uncertainty

Comments from Washington and Beijing on the trade dispute also had a big impact on prevailing market sentiment, with markets jumping up or down every time the US or China made comments.

Data shows that between 1900 and 2017 there were more than 1,100 daily stock market jumps of more than 2.50%, with only seven (0.60%) of these attributed to trade policy news. Between 2018 and August 2019 there were 13 daily stock market jumps greater than 2.50%, with five (38.50%) being attributed to trade policy news.

Policy uncertainty in SA is more nuanced and according to the policy uncertainty index of the North-West University Business School it has been caused by anything from Nenegate and cabinet reshuffles to state capture, land reform and state-owned enterprises.

Both global and local uncertainty are affecting how economies and markets behave.

Locally, protracted policy uncertainty and poor economic results have contributed to very low business confidence levels. The NWU Business School report found that high levels of economic policy uncertainty inhibit meaningful investment and consumption.

When investors are unsure, there is usually a flight of capital from riskier assets, such as those in emerging markets, to safe havens such as gold, the US dollar and bonds – with the price of gold steadily increasing since 2018. The move to safe haven assets has affected the rand, which weakened by about 27% against the dollar from October 2014 to October 2019.

A key question is how the local economy could respond to global developments.

Although our economy is likely to be impacted negatively if the US goes into recession, one can argue that domestic assets should rebound when risk appetite returns to global capital markets.