• Kondi Nkosi

How did SA Investors react to the impact of COVID-19?

Faced with one of the biggest global economic shocks in history, it is not surprising that the majority of local investors reacted by changing their portfolios. What is surprising, however, is that almost a third of South African investors (31%) took the opportunity to raise their exposure to higher-risk investments.

This finding, which mirrored a broader global trend, was revealed in the recently released Schroders’ Global Investor Study 2019 – an annual survey of more than 23,000 wealth[1] investors, conducted across 32 locations around the world between 30 April and 15 June 2020.

Having probed investors about their actions following a period of extreme market volatility – between mid-February and mid-March, when world stock markets lost approximately one third of their value[2] – the study found that 64% of South African respondents made some changes to their portfolio as a result. 31% said they kept their investments “where they were”, while a small 5% were unaware of the turmoil in markets, and so took no action.

Of the 64% who did change their holdings as the crisis unfolded, there was a stark divergence in response. A total 47% said they moved “some” or “a significant proportion” of their portfolio to lower-risk investments. But 31% took contrary action, saying they moved “some” or “a significant proportion” in to high-risk holdings.

“Instinct tells us to take cover after a big shock,” says Kondi Nkosi, Schroders Country Head in South Africa, “and so it is not surprising to see that some investors were selling in the wake of COVID-19. But it’s noteworthy that such a significant share took the opposite action, and added to their risk.”

Nkosi sees this as a sign that investors are becoming increasingly ‘value aware’. “We’ve got to remember that COVID-19 came after a long period of rising stock markets, and my sense is that many investors were conscious of valuations becoming high.

“So they saw the February-March correction as a window of opportunity. I think we’re seeing a large cohort of investors not only committed to stock markets, but also increasingly watchful, looking to spot moments of value.”

In some cases in the short term at least, the action taken by some bullish respondents is likely to have paid off, as stock markets have rallied strongly since their lows despite a continuing stream of unsettling economic data. “It may also be the case that investors are becoming used to seeing a divergence between stock market performance and economic performance,” Nkosi adds.

On the other end of the spectrum, the study revealed that while some investors were moving a proportion of their portfolio into lower-risk investments, others went further, and said they had switched to cash. When questioned about their actions following the onset of the pandemic, 18% of respondents said they moved “a significant proportion” of their portfolio into cash, while 14% moved some of their portfolio into cash.

Nkosi says that this raises interesting questions about investors’ future intentions. “The survey gives an intriguing snapshot into investors’ attitude to cash. Clearly there are investors who view cash as a safe haven in times of crisis, and some respondents said they sold equities and switched into cash,” he notes. “But the responses also revealed that a large proportion – more than a third – moved into higher-risk investments, and that suggests to me that some investors hold cash, and other less-volatile assets, as an ‘opportunity pot’ to spend when share prices fall to attractive levels.

“As history shows, in practice it is very difficult to spot the best time to invest. The biggest problem facing those who switched into cash is likely to be the issue of when to go back in to the market,” Nkosi concludes.


[1] In April 2012, Schroders commissioned Research Plus Ltd to conduct an independent online survey of over 23,000 people who invest from 32 countries around the globe. The countries included Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, South Africa, Spain, the UK and the US. This research defines “people” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last ten years.

[2] MSCI WORLD fell 34% between 12 February and 23 March. Source: Refinitiv.