Wednesday, May 12, 2021

Botswana rides out global financial storm

The Bank of Botswana and local fund managers this week seemed poised to ride out the international financial crisis although they have taken minor knocks.

Local fund administrator, Alexander Forbes has asked pension fund managers under its administration for reports on how they have been affected and so far only a few have suffered negligible effects, less , about 0,2 percent of the funds they are administering while most have so far emerged unscathed.
Although they have not received reports from all of their clients, Alexander Forbes Managing Director, Paul Masie was this week optimistic that there is no cause for panic.

The Bank of Botswana has also emerged with minor bruises after loosing slightly less than a million Pula from its foreign reserves estimated at about US$ 10, 2 billion.

The simultaneous demise of the century old American corporate icons of Lehman Brothers and the Merrill Lynch following the US government rescue of mortgage lenders Fannie Mae and Freddie Mac has exceeded the worst fears of the most pessimistic commentators and has been described as a 100 year event of epic proportions.

Alexander Forbes this week issued a statement advising retirement fund members and trustees that “although the recent event is unique and we cannot be sure of what further problems are going to arise and what the ramifications for the market are going to be, it is useful to look back at past bear markets (assuming that we are currently in a bear market) in the US to put the current moves into context. There have been five distinctive bear markets since 1970 which saw the S&P 500 decline by an average of 31% and which lasted on average for just over 15 months. The worst of those was from September 2000 to October 2002 when the market declined by 46, 4 percent at the IT bubble burst.

The current situation could be described as the bursting of the financial bubble. In all cases markets have recovered over varying time periods, and those recoveries have in some cases been very quick. There is currently a case for a potential market recovery. According to JP Morgan, it is estimated that global money market asset amounts to about US$ 5, 7 trillion and money in global savings accounts and money market funds are at record highs of US$ 35 trillion. There is therefore a potential for part of this huge amount of capital to seek buying opportunities in oversold markets and contribute to unique to similar recoveries seen in the past. Once there is a rebuilding of risk appetite, and should returns on cash fall, the extent of these cash resources suggests that a recovery could be swift.

Alexander Forbes says “past experience suggests that it is unwise to panic and make short-term decisions that are inconsistent with the investor’s long term strategy. Our advice in the past and remains as such today that in times like this it is essential to focus on long term objectives and to ensure that the current investment strategy is aligned with those objectives. There are many investors who flee to the apparently safe money market investments when markets are volatile.

This may prove to be beneficial in the short term but the decision to reinvest is a much more difficult one than to disinvest. To get the timing of these moves correct is virtually impossible and requires a great deal of luck rather than skill to improve long term returns.”


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