Value in offshore equities
Because it is not easy to predict the future, it therefore remains to be seen whether the JSE All Share Index can produce the remarkable returns of yesteryear. The signs, however, are beginning to provide some direction. The MSCI World Index has outperformed the local bourse by some 12% so far this year. The case for looking at offshore equities to put some of your money therefore is as compelling as ever.
Investment Solutions’ head of institutional business, Alan Woods, echoed this sentiment, cautioning that local investors need to temper their return expectations.
“Although 2012 was a phenomenal year for growth assets – particularly South African equities and property – this was unlikely to continue over the next 10 years. It is more prudent to expect returns of around CPI+5% a year from a well-diversified growth balanced portfolio. Remember that this return will not come in a straight line,” he said in a note to Finweek.
To date the MSCI World Index has given investors 16.3% compared to the JSE 4.1%, in rand terms – 6.9% and (4.4%) in dollar terms, respectively. For the 2012 calendar year, global bonds had a poor show, delivering only 1.7%; needless to say, this is where many investors committed their assets. Emerging market equities were impressive with their 18.6% return while their counterpart, the developed market equities, produced 16.5%, in dollar terms. But the local bourse was the star player, delivering an even sweeter 21.8% compared the MSCI World Index 16.5%, also in dollar terms. Further, local assets outperformed the S&P500 assets by four times, according to Coronation Fund Managers.
However, we have experienced in the recent past how this status quo came to be threatened. The labour unrest in the mining sector and the resulting sovereign downgrades, including the song and dance of the rand, being the main highlights.
Consequently, investors have been given red f lags about keeping all their money invested locally. “We believe that the bulk of the re-rating of South African assets has already taken place. We are not saying that there is no upside left – we simply believe that investors should not expect the same level of outperformance going forward,” Coronation said in a recent presentation to financial advisers.
Investors, though, remain under the assumption that global equities are overvalued relative to local equities. But data says otherwise. The average p:e ratio of global large-cap shares held in Coronation’s global
Local vs International