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Tilman Friedrich’s Benchmarks December 2013 / January 2014 All eyes on Fed

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.

Download the complete Benchtest fund investment overview for November 2013 and the Early Bird report for December 2013 at

Tapering of the Feds asset purchase programme is pretty much a given, only the time is still a bit nebulous at this stage although consensus is that it will commence in 2014.

To counter another panic reaction when this happens, the Fed has already indicated that it will maintain an accommodative monetary policy and that it will continue with its zero interest rate policy. Markets seem to have started to discount these developments towards the end of November. As the result the SA Allshare index hardly moved in November and declined by nearly 6% from end of October to middle of December. Graphs 5.2 and 5.3 of the RFS November Benchtest clearly evidence the panic response of foreign investors in local markets and indicate an ‘overshoot’ scenario that has also lead to the Rand being undervalued at 10.19 to the US$, by our measure.
How much further markets may decline is anybody’s guess. The Fed does not seem to be keen on equity markets turning negatively as this will impact negatively on consumer sentiment, which in turn will counter its intention of boosting the US economy. In such a situation however, sentiment is likely to lead to markets overshooting to then correct again after a while when the real impact of the tapering combined with a low interest rate environment filter through.
We would expect the current negative trend in equity markets and the depreciation of the Rand to continue for a couple of months as the result of prevailing negative sentiment and the uncertainty about the impact of the tapering on financial markets.
With an expectation that this will correct again, we believe that it will not be the right time to get out of the equity market now without a very clear objective when to get back into the market, or for the specific purpose of short-term parking of money. It is usually easier to foresee a decline in the equity market, other than as the result of panic reaction by investors, than it is to foresee a correction. Corrections typically happen rather rapidly. Missing out on a correction can seriously affect investment returns.

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