Value in off­shore eq­ui­ties

Finweek English Edition - - INSIDE -

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

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