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Given the reduced economic growth prospects for South Africa, more than half of the professionals surveyed in the latest PPS Professional Confidence Index (PCI) would consider including global assets as part of their diversified portfolios. 59% of the respondents indicated that if they increase their investments this year they are more likely to increase their allocation to global assets. The survey, which received nearly 4 000 responses, revealed various insights into graduate professionals‟ outlook for the future of the country's economy.
According to Duane Littler, Business Development Executive at PPS Investments, global allocations would play a significant role in offsetting any further future rand weakness, but professionals would be well served to maintain a diversified investment strategy that would not be wholly exposed should the rand strengthen.
“This tendency towards a global allocation is likely to be a direct reflection on their current perceptions of the economic prospects of South Africa in the near future. Interestingly, 67% of the graduate professionals surveyed believe that our economy could be in a worse position in five years‟ time if strong measures are not taken. When asked how confident they are in the economic outlook for South Africa over the next twelve months, the respondents revealed a confidence level of 42%, states Littler.
He says it is understandable that many professionals feel disheartened about South Africa's economic position. “Last year was a difficult one, with reported measures of both broad consumer and business confidence decreasing amid growing sense of unease, particularly questioning the apparent lack of policy cohesion at a national level. The World Bank's revised our growth forecast to 0.8% and we're also facing a potential downgrade from rating agencies of SA‟s status towards the edge of investment grade.”
Furthermore, a steep decline in the rand, and drought-induced food and electricity price increases will put significant pressure on inflation, and in turn pressure on the country's economic growth, says Littler.
It is also not unexpected that 73% of the respondents reported feeling despondent about their long-term savings in the market environment, or that 40% of the respondents are not entirely confident that they are investing enough for retirement, says Littler. “The key consideration for most investors is whether the amount they're targeting at the end of the investment period will be enough to sustain them throughout their retirement. People are living longer and the cost of living keeps on rising – even the wealthiest of investors may underestimate the impact of inflation on purchasing power over time. Investing enough, and in the appropriate vehicle is critical. A credible financial adviser should be able to assist with this.”
He says it is important for investors not to be swayed by short-term emotion but rather try to construct sensible robust portfolios that can deliver on one's objectives over the medium term – with particular emphasis on outperforming inflation, taking advantage of rand-cost averaging over time and capitalising on tax advantages of current legislation at the end of the tax year.
On a related note, 48% of respondents are considering investing in a tax free investment account (TFSA) and 24% indicated that they are already investing in a TFSA. “These investment accounts are essentially a 'gift' of tax free returns and income from the Government – provided contribution limits are not exceeded. However, it should be used as a long-term investment vehicle and to supplement not replace existing retirement savings vehicles.”
Littler concludes that while there are many issues that are currently affecting confidence levels of South Africans, the upcoming Budget Speech will have a big impact on how consumers and businesses react to the future of the country's economy