Don’t panic, we’ve been here before

For the first few months of last year, many commentators and analysts were telling anyone who would listen that investors had to send money offshore urgently.

Some were nearly hysterical, others were playing on an age-old theme of Afro-pessimism – distasteful and inaccurate.

One year later, it is worth seeing how investors profited, or not. from following those commentators.

The JSE beat the world stock markets in dollar terms in 2016, despite our well-publicised political problems and economic headwinds.

According to I-Net, the JSE returned 12.3% in dollar terms for 2016, while the World Index did 8.5%.

Had you decided to send your money offshore at the start of 2016 and you invested in the World Index, your capital would be worth 13% less when counted in rands. You would have lost money because the rand strengthened by far more than the world markets grew. Had you remained invested in the JSE, you would have made a tiny gain of 2.6%. More to the point, you would have been more than 15% better off than those who sent money out in January 2016.

I was reminded in a talk by Bruce Whitfield that this is not a short-term phenomenon. Since 1993, investors who remained invested in the JSE would have more money now when counted in US dollars than those who invested in the World Index.

In February 2016, I wrote an article cautioning investors against panic and urged them to wait for the rand to strengthen before sending money out of the country.

I received quite a few messages from readers asking if I needed a good psychologist.

But all normal markets eventually settle own. Mathematicians call this mean reversion and it nearly always causes markets to go back to their fair values if you are able to wait long enough.

During 2016, we started telling investors to consider sending money offshore when the rand reached R13.50. We further suggested that they send their money out in tranches in the event that the rand strengthens even more.

I believe investors should have a large offshore exposure. However, decisions about offshore investments should be based on your personal circumstances and not on current events.

When the rand goes haywire again, try to avoid the panic, ignore hysterical market commentators and remind yourself about the basics of mean reversion.

Warren Ingram is an executive director of Galileo Capital. This article was published in January. We thought it would be useful, following the downgrade.