The investment industry could face one of its toughest years to date in 2020 as people are losing their jobs and cashing out their pensions to survive, while companies are giving those who remain employed options to save less for retirement.

One of SA’s biggest asset managers, Coronation Fund Managers, said while it is still early to assess the impact of coronavirus-related job losses on the industry, it is safe to expect that less money will be coming in. On the other hand, the industry will be at the mercy of the financial markets and praying that the bloodbath that took place in February and March does not repeat and wipe out value of companies fund and asset managers have put their bets on.

The lockdown effect

“South Africa has experienced low economic growth for the past few years. We’ve seen unemployment rise. All that now has been exacerbated by the impact of Covid-19,” said Coronation CEO, Anton Pillay.

He said as more companies are announcing retrenchments, employees gain access to their pension funds and the number of people contributing to the country’s overall savings pool is dwindling.

“There’s the unemployment and the falling contributions, because what the lockdown has allowed people to do is, for the next three to six months they may not contribute to their retirement fund. That means we are not going to get flows or there will be a lower level of flows coming in from people who are still employed,” added Pillay.

Shrinking savings pool

This expected slump in contractual savings comes as South African households have already been in a dissaving territory since 2018, meaning that after spending all their income, they go further to borrow or use past savings to fund consumption.

David Talpert, analyst at Avior Capital Markets said while it was difficult to quantify how fast the lockdown could accelerate dis-saving, it made sense that increased unemployment and lower GDP would lead to reduced savings and increased outflows from the asset management industry.

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