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Investing in 2023: Strategies to Weather a Bumpy Ride

Heading into 2023, the global investment community is not asking whether it will be a tough year economically and on the markets, but rather how tough it will be.

As 2022 drew to a close, we found ourselves in a significant market downturn with many compounding factors, including the Ukraine conflict, the legacy of central bank quantitative easing during the pandemic, a normalisation of developed market interest rates, spiralling inflation, the likelihood of a recession and the European energy crisis.

As 2023 dawns, we remain knee-deep in most of these events, and even once we start to emerge recovery is likely to be slow. Knowing that retail and institutional investors need to find returns even against this background, we have made three clear commitments to guide our investing activities in the coming years.

To Invest for Good

Over the past few years, investing sustainably and for impact gained a lot of impetus. Some pundits believe the present market downturn may cause investors to abandon sustainable strategies in favour of higher short-term returns. Fortunately, this outcome can be avoided without causing harm to investor portfolios.

We remain committed to investing sustainably and are passionate about allocating clients’ capital for the good of our planet and its people. In support of this commitment, we have made significant progress in aligning our entire organisation to drive sustainability and make this part of our core purpose.

On the heels of COP27, we believe it is possible to invest in the planet and its people without sacrificing profit. Green energy, in particular green hydrogen, is becoming a huge industry as alternative sources of energy are fast-tracked off the back of Russian sanctions. The recent SA Green Hydrogen Summit highlighted SA’s potential to produce 6 million to 13 million tonnes of green hydrogen and derivatives a year by 2050.

This emerging field is attracting serious investment as all stakeholders seek better ways to store the energy created by renewable solar and wind farms. With the energy crisis accelerating the need to rely on alternatives to gas and coal, we expect myriad solid investment opportunities in clean energy in 2023 and beyond.

Locally, the glacial pace of energy reform has somewhat increased, and with it opportunities for both allocators of capital and their institutional and retail investors to contribute to the fast-tracking of sustainable energy sources in SA.

To Maximise Impact Through Private Markets

Investing for impact and sustainability often requires capital to vest in infrastructure projects for many years, introducing liquidity risks that make it hard for lay investors to access these opportunities. In recognition that private markets are one of the best mechanisms to facilitate the allocation of capital towards impact, we will explore ways to make it easier for retail investors to access the private market or alternative investment space.

Asset classes such as private equity, property and private debt delivered strongly for our institutional clients in the past few years through a range of mechanisms and funds. We plan to launch more private market funds in 2023 to cover a range of opportunities under the impact and sustainability investment themes. These include blended finance opportunities in green hydrogen, renewable energy (solar and wind), and water and oceans, to name a few.

To Deliver Sustainable Growth Through Sensible Diversification

Diversification — which stands out as a foundational pillar for long-term investment success — will remain critical in 2023. Spreading your risk across asset classes and geographies remains the best way to smooth out market fluctuations and ensure that you are able to conserve wealth, regardless of the level of financial market turmoil. A well-diversified portfolio should include local and global bonds, emerging market and developed market stocks, private market instruments, property and cash.

No one knows if the world will emerge from the past three years with a new, structural normal. We’ve seen structural resets before, for instance, the shift (back in 1973) from the gold standard to a dollar standard, with the aim being to introduce more liquidity into the global financial markets. Whether the climate crisis, pandemic, social justice and the 2008 global financial crisis collectively spark a new standard remains to be seen.

What is clear is that the world was due for a cycle correction. Developed market interest rates pre and during the pandemic were unsustainably low, with central banks and government policymakers in the UK and the US simply ignoring economic fundamentals to print more money into an inflationary environment. This situation had to unwind; it started unwinding through 2022 and will continue to do so through 2023 and into 2024.

We also know that the narrative of planet over profit is growing, and that the big developed market nations are being called to atone for the damage their greenhouse gas emissions have created. How this will affect the monetary systems remains to be seen; suffice to say, heavily indebted Western markets could find it difficult to find the billions that poorer countries are demanding to fund their net-zero carbon emissions initiatives.

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