Advertise Here
Icon

Directory

IconActuaries
IconAdministration Outsourcing
IconAsset Managers
IconAssociations & Institutes
IconAuditors
IconBanking
IconBBBEE Consulting and Verification Agencies
IconBusiness Chambers
IconBusiness Process Management
IconBusiness Process Outsourcing
IconCompliance
IconConsumer Protection
IconCorporate Governance
IconCredit Bureaus
IconCurrencies
IconDebit Order Collection Facilities
IconEducation and Training
IconFAIS
IconHuman Resources
IconInformation Technology and Software Partners
IconInvestment Consulting
IconInvestment Fund Managers
IconLegal
IconLISPs
IconListed Equities
IconOmbud
IconParticipation Bond Managers
IconPolicy Administration
IconPolicy Trading
IconProperty Unit Trusts (PUTS)
IconPublications
IconRegulatory Authorities
IconStock Exchange
IconSurveys and Research
IconTraining Courses & Workshops
IconUnit Trust Fund Managers
IconWellness Programs
Image
  Subscribe To »

Spread the risk when expecting the unexpected

Published

2006

Mon

24

Apr

 
Every now and then events take place that we never expect. The unpleasant ones we label “shocks” but the more pleasing ones we usually term “surprises”. Winning the fifth one day cricket international against the Australians after they had posted a world record total was a huge but extremely pleasing surprise. For the Aussies it was undoubtedly a big shock. Some shocks are highly distressing and many people, for example, can tell you exactly what they were doing when they first learnt of the assassination of John F. Kennedy or the tragic death of Princess Diana or where they were when they watched the drama of the Twin Towers unfold on TV. As with life, the markets are also prone to shocks and surprises. More recent examples include the 1998 emerging market crisis, the bursting of the IT bubble in 2000, the market reaction to the terrorist events of 2001 and the dramatic rand depreciation in the same year. The emerging markets crisis had its greatest impact on the interest rate markets. In mid April 1998 government’s benchmark R153 bond was trading at a yield of 12,6%. By early August it had risen to 15,5% and three weeks later it breached 20,0%. On one particular day, the R153 yield gained more than 100 basis points, the magnitude of the yield range of the R153 over this past year! The prime lending rate was also dramatically adjusted at that time and many will remember how they fretted about meeting substantially higher monthly mortgage payments. Thankfully the fallout was short-lived and the markets soon recovered. Investors long of IT stocks at the end of the first quarter of 2000 will need no reminding of how the value of their investments was decimated in quick time. The riches to rags story of the Didata share price also needs no repeating but one particular IT stock incident stands out from that time. Warrants were just gaining popularity and the market was being introduced to an even more sophisticated product, barrier warrants. The gist of these warrants was that should the unthinkable happen and the stock reached its lower barrier, around half of its spot price at issue, the warrant would expire worthless. With IT stocks very much in play, barrier warrants were issued on, amongst others, Datatec. In early March Datatec was trading at R145 and this reduced to R115 at the start of the next month. Just two weeks later Datatec closed at R43.50 and the newly issued barrier warrants hadn’t lasted a week. That’s not a slight on the derivatives markets but the anecdote highlights the shocking collapse of the market at that time. Not many will forget the rand collapse in 2001 either when the currency moved from R7,50/$ in June to R9,00/$ at end-September and then to R10,27/$ at end-November and R13,72/$ on 20 December. Oil price shocks and the gold price spike to $850/oz also stand out clearly on long-term charts. The thing about shocks is that you can’t fully prepare for them. When investing though, one can carefully consider potential market risks and take some precautionary action. The best measure of insurance is diversification and the shrewd investor will not keep all of those proverbial eggs in the same basket. Diversify your investments, not only across the number of shares that you own or the sectors of those shares, but also across asset classes, across the geographic location of those investments as well as the currencies in which they are denominated. This will surely help should your investments ever have to face that unexpected market tsunami.
 
Source: Craig Pheiffer, Chief Investment Strategist
 
« Back to previous page Print this page » |
 

Breaking News »

SANDWICH PANELS: A Burning Issue - Understanding the Risk

Sandwich Panel related fires have resulted in major property damage and business interruption losses over the years. What are Sandwich Panels? Sandwich Panels or Composite Panels are structures made ...
Read More »

  

Want to withdraw retirement funds on emigration? National Treasury and SARS say try again in 3 years' time

            by Joon Chong, Partner & Wesley Grimm, Associate at Webber Wentzel   The National ...
Read More »

  

THE NETHERLANDS - CORPORATE PAYMENT SURVEY 2020

This study is the very first Coface survey on corporate payment experience in the Netherlands. Originally, this survey had been conducted between February and early-March 2020 (the first quarter of 2020, Q1 2020), ...
Read More »

  

Will Europe remain a renewable energy powerhouse after the pandemic?

Global renewable energies: continued ascension despite the COVID-19 pandemic   Paris, September 8, 2020 – The COVID-19 health crisis has had a negative impact on short-term global renewable energy ...
Read More »

 

More News »

Image

Healthcare »

Image

Life »

Image

Retirement »

Image

Short-term »

Advertise Here
Image
Image
Advertise Here

From The Glossary »

Icon

Retrocessionaire:

A reinsurer who accepts retrocession business.
More Definitions »

 

Advertise

 

eZine

 

Contact IG

 

Media Pack

 

RSS Feeds

By using this website you agree to the Terms of Use.
Copyright © Insurance Gateway (Pty) Ltd 2004 - 2020. All Rights Reserved.