SA at a crossroads: gravy train or growth

RETURNS on the JSE for the past two years have been diabolical. The All Share index is down 4% and if you factor in inflation, your investments are worth about 15% less in real terms since March 2015.

A R100 000 investment in the market in 2015 buys as much today as R85 000 did then. If you had put your money into a boring old RSA savings bond you would be seeing a balance today of about R116 000. At times like this investors lose faith in shares and opt for cash.

The Dow Jones Industrial Average this week powered through the 21 000 level, just 24 days after it crashed through 20 000 — a level it passed 44 days after breaking 19 000 for the first time. It’s a combination of a weaker US dollar and the belief that Trumponomics will somehow lead to growth and long-term stable returns.

Sceptics, though, believe the next market bubble will pop. It’s just not clear when.

The best-performing stock markets of the 20th century were in commodity-rich countries. Markets in Australia, Canada, the US and counterintuitively, South Africa, top the performance charts in dollar terms for more than a century. Despite wars, ideological battles and deep human insecurity, investment markets delivered superlative returns.

In the 21st century, mineral-rich countries have continued their strong performance, the smartest ones diversifying their economies into new industries and technologies.

Research by Credit Suisse Group and the London Business School shows what we already know: no industry maintains its dominance forever.

At the turn of the 19th century great wealth was developed through railroads — they made up 80% of the value of the US stock market. Today their market value is negligible — just as South Africa’s gold industry, once the world’s biggest, is rapidly losing its shine.

Although the JSE has drastically underperformed in recent years, its performance over a century was stellar — an average 7.2% return over 117 years, two percentage points above the global average.

However, we risk becoming an investment irrelevance this century.

We are Africa’s biggest producer of coal and iron ore and have the biggest platinum reserves, along with ferrochrome and manganese. But none are worth much locked underground as politicians fail to deliver policies that will make them worth exploiting.

Mozambique’s economy is in tatters but it is encouraging investment in oil and gas exploration. Sasol said this week that it would have no appetite for gas and oil exploration in South African waters until a definitive Mineral and Petroleum Resources Development Act was in place and it could weigh the risks.

There can be no “radical economic transformation” unless we pull out all the stops to make growth happen. That doesn’t happen while Prasa’s services crumble and executives plunder the resources of state-owned enterprises. It doesn’t happen while policymakers hellbent on political self-preservation strike deals like the wholly unaffordable nuclear one more than a decade before we need to consider alternatives.

Research shows that equities remained the best-performing asset in every country studied, emphasising that in the long run sensible risk taking is rewarded.

Researchers warn of war and revolution. Modern-day Germany and Japan (until 1939 the world’s second-best-performing stock market) are bastions of free-market success, but investors there would have lost practically everything by 1945 — as did the Russians in 1917 and the Chinese in 1949.

Economic and market performance is making the right choices at the right time. Countries that make bad choices, Zimbabwe and Venezuela among others, fail.

South Africa has the opportunity to make the right choices for the long term, now.