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Russia’s attack on Ukraine has dominated our news feeds. While South Africa may be a long way off geographically from the conflict that’s not to say it won’t feel the brunt of it financially.
Even though the world has been slow in stopping its purchase of Russian oil and gas, there’s no doubt that the country, as well as Ukraine, are in for a deep recession.
But what kind of financial impact will this war have on the local economy and on South Africans’ investment and property portfolios? Here several experts reveal what we can expect.
Volatility
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Portfolios with investments in South African companies may be affected by the conflict in Ukraine in different ways. The general consensus is that you can expect volatility to endure – where share prices go up and down.
Some investors have already seen some ghastly plunges in prices. ‘Those with exposure to industrial stocks such as Mondi and Barloworld, which have large investments in Russia, have fallen by 28% and 30%, respectively.
‘Also, real estate firm Nepi Rockcastle, which does not invest directly in Russia but has around 80% of its property portfolio invested in countries bordering Ukraine, fell 13% last week,’ says Miguel Rodriguez – chief market analyst, Capex.com.
But not all share prices have been negatively affected. ‘On the other hand, shares of platinum group metals (PGM) are rising as the market anticipates that local miners could benefit if Russian sources of PGM are seized. In this regard, Impala is leading the charge with a 15% rally over the past week, but Anglo Platinum, Sibanye, Harmony and Gold Fields are also up,’ points out Rodriguez.
Impact on the Euro
If you hold any money/investments in euro, you could be in for a bumpy ride. Rodriguez explains: ‘The most affected is the euro due to Europe’s energy dependency on Russia and in general for having greater commercial relations with this country. But above all because the ECB will be unable to raise interest rates in the face of a foreseeable economic slowdown in Europe as an immediate consequence of the conflict in Ukraine.’
Food inflation
There is set to be a global food and energy prices hike because of the conflict. Domestic agricultural economist Wandile Sihlobo says there is a potential for food price inflation, with Ukraine being a key agriculture producer. He points to maize, wheat, soybean, and sunflower oil prices being significantly up from a year ago.
Rental market recovery
A rise in inflation could prove advantageous for the rental market as home buying becomes an uncertain prospect.
‘We have expected that the rental market will strengthen as interest rates rise, with the economy and tenant payment performance both recovering after the hard lockdowns, and a greater group of would-be home buyers postponing their home buying to remain in the rental market for longer while rates rise,’ points out John Loos, property strategist at FNB Commercial Property Finance.
What should you do?
With energy and food prices going up, it’s probably wise to ensure you have some wiggle room in your budget to account for this added expenditure. Do this through curbing any spend on frivolous lifestyle purchases.
With so much volatility and uncertainty, it’s understandable that you want to shield your investments from the ups and down of the stockmarket. But the answer isn’t to run for the safety of cash or gold. Most financial advisors advocate the benefits of a diversified portfolio in this situation.
Plus, many investment management houses have already made changes to their portfolios and exposure to Russia to reduce the impact on their client’s portfolios. The Momentum Investment’s team point out: ‘The effective exposure Russian equities in our Fund of Funds is significantly reduced and can be considered immaterial on overall portfolio level.’
If you’re keen to get onto the property ladder, consider that it may be more expensive to do this if you haven’t already got a home loan as interest rates go up. If you’re renting out your property, you may benefit from having a stronger rental market as people become more reluctant to borrow from banks as credit becomes more expensive.
If you’re an investor a few minor tweaks may result in better performance from your investments.
Rodriguez says: ‘The most reasonable thing is to go to professional advice to be able to rebalance the investment portfolio that must be aimed at overweighting investment in companies that will benefit in the near future from economic sanctions against Russia, such as companies in the mining sector and reduce it in other sectors that are going to suffer a severe reduction in income due to their direct investment activity in Russia, such as some industrial and real estate sectors.’
