Investing through the noise

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00:00 – Introduction 

Jeremy: Investors in South Africa are navigating a market shaped less by fundamentals… and more by reaction.

In recent weeks, geopolitical tension has driven sharp moves across oil, currencies and global equities. The rand has swung – weakening, recovering, and shifting again, often within days.

And yet, despite the volatility equity markets have remained relatively resilient, with returns increasingly concentrated in a narrow set of sectors and stocks.

What feels like active decision-making is often just exposure playing out beneath the surface. A concentrated local market can mean portfolios are less diversified than they appear. While a volatile currency means offshore returns are driven as much by the rand as by the underlying assets.

So, in an environment like this the real question isn’t just what markets are doing but how investors are responding.

I’m Jeremy Maggs, and this is No Ordinary Wednesday - Investec’s podcast on what’s moving markets, shaping economies and influencing investment decisions.

In this episode, I’m joined by Tinus Rautenbach, Head of Clarity by Investec, and Bongani Nhleko, Operations Consultant for Clarity – an online trading platform that provides instant access to local and global markets, in rands or foreign currency, with a low minimum investment.

Together, we’ll go beyond theory to unpack what investors are doing in real time, where capital is flowing, and the risks that may not be immediately visible.

Tinus, Bongani, welcome to No Ordinary Wednesday.

01:43 – How investors react to breaking news

Jeremy: Bongani when headlines hit, whether it's escalation in the Middle East or a sharp oil move, how do Clarity users react within 24 hours? Are they stepping into volatility or stepping away from it?

Bongani: What we usually see is a mix. The dominant reaction is pausing rather than panicking. There's an initial spike in connectivity as you'd expect, people logging in, checking their balances and scrutinising the share prices but fewer impulsive trades than you might expect.

Some clients do step into volatility though, as you would expect from the more experienced traders who see it as an opportunity. The vast majority tend to wait, digest and look for confirmation before acting.

Jeremy: I'm assuming that in a moment like this timing, as far as outcomes are concerned, means everything.

Bongani: Yes, that is generally the accepted term. However, in this specific case, timing is more about sequencing not speed. The better outcomes usually come from investors who take a moment to see how the story evolves before reacting, because sometimes markets can often overshoot on the first move. Those who wait for direction rather than the drama tend to make more considered decisions.

You act too fast and your emotion can get in the way. You act too late and the markets already priced it in. The sweet spot is responding once the dust has settled.

03:06 – Market resilience and the fragility of narrow leadership

Jeremy: So Tinus, talking about drama, despite intense geopolitical tension, equity markets, I think you'll agree, have been relatively resilient, even hitting highs in some cases with gains concentrated though in a handful of sectors. If only a few sectors are driving returns, are we underestimating how fragile this rally actually is?

Tinus: I think it's fascinating to be in a world where we've got a war in the Middle East, we still have a war in the Ukraine on the go, we have got changing politics coming out of America by the minute or by the tweet, and it is interesting that the equity market is so resilient and robust. Having said that and looking at how concentrated it is, it does feel like it's fragile, and part of that fragility you have seen in some big market moves over the last month, in the past six weeks, and so yeah, there is a bit of a fragility in the move.

It's been very hard for the market to call whether this is a rally that will keep on going and it's probably too soon to tell. The market gets very excited - whenever there's any inkling of the Strait of Hormuz opening again. And, at the moment, the market is news-driven.

04:17 – Flight to safety: textbook vs reality

Jeremy: We often talk about flight to safety in theory. So gold, dollars and bonds but in practice, some investors don't always follow the script. So, I'm interested to know what you've observed - are investors following the textbook crisis path or are they writing their own playbook?

And is it driven by conviction or, as Bongani alluded to earlier, the speed of information?

Tinus: The playbook has definitely changed and the playbook we've seen is the gold rally and essentially a dollar weakness maybe for the last 18 months or 12 to 18 months. That has played out outside of this loss – the crisis in the Middle East – and the playbook has maybe moved away from just purely looking at a single asset class as your safe haven towards clients looking at diversification. And we see clients instead of maybe going into a single asset class, going into ETFs or diversified plays, to be able to to weather the storm, and looking at various indices etc, to do that instead of just buying, as you say, gold or just trying to park in dollars.

Specifically between gold, dollars and bonds, the correlations have broken down, some of the narrative that used to be gospel is not gospel anymore. And so clients have definitely moved away from just blindly following the old about what to invest in when there's risk. And the playbook has become more diversification across multi-jurisdiction, multi-index, multi-asset class.

And that's been made much simpler through some of the products available now.

05:54 – Trading the news cycle: does it add value?

Jeremy: So Tinus, if the playbook has changed, it's all now about philosophy and mindset, I wonder then if investors are trying to trade the busy news cycle rather than investing through it. Does that behaviour actually add value over time?

Tinus: Picking up on what Bongani said earlier, we definitely have a spread of clients. Some of them are really familiar with both instruments and the market and they are very comfortable to trade the news and to take a view on how they think things will play out. But we also have a big base of clients that are using investment as a real long-term play and news cycles are less relevant. So, we are seeing a bit of both.

We've seen so many research articles showing that ad hoc trading around news usually destroys value instead of creating value for most of your novice traders. But we see some experienced traders that enjoy trading the news cycles.

06:53 – Diversification in a concentrated market

Jeremy: Tinus, looking at the concentration of stocks - are investors diversified enough?

Tinus: On average we see that platforms these days give you easy access, both local and foreign - diversified through products like ETFs. We, on average, see accounts being well diversified. So clients are using the tools to easily diversify.

You might actually now get into a space where clients are over diversified and buying ETFs that hold similar stocks across, or similar indices across, and you're not necessarily getting incremental value.

So, diversification is very good. It creates a different tool to deal with obviously the shocks and the volatility that we've seen. But we almost have to be a little bit weary of being too diversified and they're not necessarily getting the equity risk premium that you will get from owning stocks.

08:24 – Offshore investing: asset exposure vs currency impact

Jeremy: Bongani let me push a little bit on diversification for local investors. Offshore exposure is often seen as diversification but obviously returns are heavily influenced by the rand. Strategically then, how are they navigating this dynamic? Are they investing offshore for assets or for currency?

Bongani: It's honestly a bit of both. We see some investors are very deliberate about their offshore exposure. They want access to the global companies, the sectors and the growth themes that they offer which simply aren't available locally. For them the asset comes first and the currency is almost a secondary benefit. What we're seeing more recently is growing awareness of this trade off.

Though investors are starting to understand that offshore returns aren't just about picking the right shares or stocks and ETFs, currency can amplify your gains just as much as it can mute it. So as a result, we're starting to see investors have more realistic expectations of what the market can do for them, both on the stocks level as well as from a currency level.

People are thinking more consciously about when they want to go offshore and how much they want to allocate to their offshore allowance, and whether they're comfortable with the currency swings being a major driver of their returns in the short term.

09:55 – Sector trends: what investors are buying now

Jeremy: Tinus which sectors are seeing the biggest increase in interest on Clarity right now? And is that being driven by fundamentals or, as we've discussed a little earlier, the narrative?

Tinus: At the moment, interest is driven by the narrative and not necessarily by the fundamentals. We have seen lots of activity in oil and oil- related exposure, which is fully expected. And so, at the moment, it's more driven by narrative, I think. Interesting.

Just to touch on local or foreign narrative – as of the budget speech, South Africans can now take out R2 million under the SDA. It creates a lot more opportunity for clients to invest or makes it much easier to invest internationally.

And so it's easier to get exposure to the BP’s, the Shells, to play this narrative. So, we've definitely seen a pickup in that.

10:46 – Commodities, energy and tech: short-term trade or long-term shift?

Jeremy: Which means Tinus, increase in activity in areas like commodities, energy, and even global tech. Given this current uncertain environment, is that positioning sustained or do you think it's just short term?

Tinus: Well, there's no crystal ball here, Jeremy. I know you'd love to get the stock tip, but I think it's harder to talk about the sustained runs or rallies.

Commodities and energy, ultimately, we'll find a way to normalise because it drives inflation, and if inflation gets too hot, ultimately activity comes out of the GDP and out of industry, and therefore, demand will fall.

So, I think around commodities and energy, there's a self-correcting process, and the cycle will correct itself if it runs too hot.

Global tech is a slightly different narrative. We all read a lot about AI and the advancements, etc, and a big part of the global tech rally is actually around –perceived correctly or not – increasing in productivity that AI can bring to civilisation as a whole.

And so maybe depending on whether we think it's really overvalued or not, we'll have different driving forces because you obviously can still see the massive productivity gains if some of the prediction around how the technology plays out comes true. So, some of it, I think, may be more sustained, but commodities and energy will have some self-correcting process to it.

12:12 – Beyond equities: rise of cash, crypto and alternatives

Jeremy: Bongani. Beyond equities, what instruments are gaining traction and what does this reflect? 

Bongani: So, we're seeing a growing interest in cash-like instruments on some defensive income-style assets. This tells us that investors aren't necessarily bending all risk, but they're rather becoming a little bit more selective.

There's a clear desire for them to earn something whilst they're waiting, rather than being completely all in or sidelined at the same time. We're seeing quite a few people branch out into alternative investments, particularly cryptocurrencies. For some investors, crypto is viewed as a long-term hedge or diversification play rather than your short-term trade.

Alongside that, there's also been a noticeable trend, as Tinus actually mentioned, toward AI-related investments. And whilst neither of us have a crystal ball here, it's gaining a lot of traction. A lot of clients are trying to get all their hands on top of AI-related products, whether it be directly through companies or global tech companies that are actually producing these AI bots or agents as you may want to call them.

What we can see again is that there is some form of a structural trend that people are starting to see whether that's going to be a long-term decision or long-term perception that holds or a passing cycle, we'll only be able to know in a couple of years, I suppose.

13:31 – Investor mistakes in volatile markets

Jeremy: Tinus correct me if I'm wrong, but one of the risks I imagine in volatile markets is increased activity without improved outcomes. What are the most common mistakes that you are seeing right now?

Tinus: I think it's part of your old trading strategy, trading style, trading philosophy, “plan the trade and trade the plan”, and in high news flow environments like we have at the moment, trader individuals do tend to overreact, change their plan without necessarily going through the thoughtful process on why they're in the position. What's the target price for this position, what's the stop loss for this position, etc.

So yes, we do see trading frequency, it's news-driven. You're a hundred percent right, not necessarily for better outcome. And the mistakes we're seeing, it's not different to any other news cycle, and that's really to move away from the plan, the reason that someone got into a position and rather just get worried about the current year’s flow.

14:31 – Trading frequency: activity vs discipline

Jeremy: And Bongani, I'm assuming that you are seeing a meaningful increase in trading frequency during this period of heightened volatility?

Bongani: We certainly seeing quite a decent increase in trade and frequency, but it's not uniform across all users, one could say, as myself and Tinus have been discussing earlier, we do have some of the more experienced traders who actually feel a little bit more comfortable, making those kind of decisions across periods of volatility.

Whereas other individuals or investors or long-term holding investors would prefer to wait and see how the market plays out in their favour.

Obviously, there would still be a lot more monitoring from their side because as Tinus did mention earlier, there's quite a bit of news-driven narrative out there that are making people make hasty decisions, one would say, so a lot of the people who are inexperienced or the novice traders or investors obviously panic as soon as they hear that something is tanking or something's dropping, or there's some ridiculous news coming out there that shifts a specific industry.

The problem again with them is that their initial reaction is to get out immediately, as opposed to, as Tinus said, maybe, possibly just wait it out, figure out whether or not this is the position you want to hold, what's your price point, when you're going to get out.

So we do see increased activity from both sides, from experienced individuals and from the novice traders. However, there is something I want to stress though in terms of patience, because the distinction is quite important for an individual who's wanting to hold a position versus somebody who's immediately trying to get out because of a news-driven narrative.

And I said this distinction is quite important because it suggests a level of discipline. Increased awareness doesn't always translate into increased action. In many cases, restraint is a healthy response. So, investors who tend to navigate volatile periods best are often the ones who stay well informed.

They reassess their positions, and they only act when something genuinely no longer aligns with their longer-term view.

16:27 – Positioning for inflation and higher rates

Jeremy: Tinus there is a growing narrative around higher for longer interest rates and persistent inflation, you've both alluded to that. Are your users positioning for that reality assertively right now or still investing as if conditions will normalise quickly?

Tinus: I think we've definitely seen clients move some of their portfolios a bit more conservatively as the war in the Middle East began. The market has bounced off the lows and rallied hard.

Some of our clients have definitely felt like they've missed out on some of the rally. Some of it has been to go into cash-like products as Bongani alluded to earlier.

Clients are definitely positioning for this idea of high interest rates as inflation come through. We've seen it and clients are positioning for it. Are they too early?  Well, if the war’s over tomorrow, would that mean inflation will normalise sooner? Or this scare of inflation won't come through as bad as everyone's predicting it at the moment with the high energy prices. Again, that's the crystal ball.

17:47 – Global conflict and the South African portfolio

Jeremy: Tinus how should a South African investor interpret global conflict risk in their local portfolio?

Tinus: We are quite lucky to be at the South of Africa at the moment. It feels like, at least from a safety point of view, we’re well removed from it. But how do you look at your portfolio?

We have definitely seen it over the previous five years. There was a massive flight into dollar assets and how clients invest internationally. But with the top 40 in the South African index doing so well last year, stellar returns, we have seen clients coming back to having a more local flavoured portfolio, making sure that that balance is right between local and offshore. Good diversified portfolio will weather the storm.

Jeremy: That is where we are going to close off today's episode of No Ordinary Wednesday. Tinus, Bongani, thank you so much for joining me.