No discussion on the global economic and investment outlook is complete without taking into account the local dynamics, which in South Africa is dominated by the constraints caused by power utility Eskom and the volatile political situation.

Talking on Investec Wealth & Investment’s Outlook 2020 panel, Chris Holdsworth, Chief Investment Strategist, warned of at least two years of electicity constraints and tax increases in February. However, if South Africa is able to sort out some of its most pressing problems, we may be able to benefit from global economic tailwinds, he says.

"We've got a trade war de-escalation, inflation remaining low, manufacturing activity picking up - it points to an improving global environment and one that would traditionally be very helpful for emerging markets."

Political analyst Ralph Mathekga says that one positive in South Africa is the decline of illusion among ordinary citizens. “We’re starting to see the core voters of the ANC asking critical questions of the party,” he says. “That's how change is going to happen, change is not going to happen because we stumbled upon a great leader within the ANC, it is going to happen because of the reality of the ANC losing power.”

Joining Mathegka on the panel that was moderated by Investec Portfolio Manager Ronelle Hutchinson, Marc Romberg (Investec Wealth & Investment National Wealth Management joint head) said that South Africa is facing these challenges in a world that is rapidly de-globalising.  

“Globalisation has created incredible growth across the globe over the last few decades. De-globalisation, a protectionist world and trade wars are going to be something we are going to have to face,” he says.

Holdsworth identifies three global investment icebergs to watch out for. The first is the trade war, though there may be some de-escalation as President Donald Trump seeks to be re-elected.

“The trade war won’t be over within 12 months and the Trump administration has indicated that once they're done with China they're going to take a closer look at Europe,” says Holdsworth.

The second is inflation. “The last few years we've seen very little sign of inflation pretty much anywhere in the world, South Africa included,” he says. “That’s been very helpful for central banks that have been able to provide stimulus, and financial conditions have loosened across the world. At the first sign of inflation we remove that space from central banks, so it's something we need to keep a very close eye on.”

The third is global manufacturing. Holdsworth says we appear to be at the end of a manufacturing slump globally, notably in China and Germany. The opportunity exists for South Africa to export steel, iron ore and other commodities to fuel this comeback in manufacturing.

“If you put that all together, we've got a trade war de-escalation, inflation remaining low, manufacturing activity picking up. It points to an improving global environment and one that would traditionally be very helpful for emerging markets, including South Africa,” he concludes.

South African investors have been taking a lot of their assets offshore benefiting from Rand weakness and the good returns. The panel believes this trend will continue in 2020.

“Simply from a diversification perspective there is always an argument for going abroad and finding things that you cannot get in South Africa. It makes no sense for us to have a hundred percent of our exposure here. We already have our salary exposure, our homes are here,” says Holdsworth.

In a tougher global environment, Romberg urges investors not to make rash decisions or to wait too long on the side-lines. “The last quarter of 2018 was a really tough time. Global markets were probably down 15%, but if investors panicked and got out, they would have missed one of the best years of returns for investments.”

While staying the course is critical when it comes to your investment strategy, Romberg believes it’s important for investors to remain nimble. “For high net worth investors, it's important to look at other asset classes, so maybe some alternative asset classes, some less liquid investments that will generate returns that are diversified and have a different profile to the traditional investors.”