The truth about the JSE
PENSION FUND RETURNS ARE DWINDLING Investment returns would have been higher had you been able to invest your money fully offshore.
Regulation 28 is a direct consequence of capital controls, imposed on SA investors by the apartheid government in 1960. They’ve changed but individuals and institutions still invest and move money in/out of SA under strict guidelines and National Treasury and the Reserve Bank’s control.
Years ago, Stanlib’s Paul Hansen sent me calculations which showed that investment returns from 1980 to 2011 would have been double had you been able to invest your money fully offshore, in this case the US.
I analysed the JSE All Share Index’s performance against similar indices representing the performances of investment markets in Europe, the US, Asia, and emerging market counterparts to compare, like-for-like, in rands and US dollars over one, three and five years, and one and six months. The result was identical.
The JSE lagged over every period in this comparative study – in rands and in US dollars.
Even the stronger rand couldn’t conceal the JSE’s putrid performance over the past 12 to 18 months, while the rand was strengthening against foreign currencies.
Worryingly, the JSE’s lagging the developed world’s indices and also, by far, the Emerging Markets Index, of which it’s a major constituent. It suggests global institutional investors are massively underweight in SA versus other emerging markets.
I don’t like what I see. We’re talking about the future retirement benefit of millions of people who don’t always fully understand why their pension funds aren’t growing and beating inflation. It comes as no surprise that JSE (Pty) Ltd, the company operating the local stock market, feels the pinch and must cut costs and staff. Global fund managers have been massive sellers of equities out of the local equities market over the past 18 months.
Add to that the estimated R80 billion remitted to offshore investment markets via offshore investment allowances over the same period. This represents a huge loss of business to the JSE.
I cannot recall when last our practice invested money in a local equity portfolio, while the demand for offshore investments has been massive. Any local money goes towards income and perhaps bond funds.
Most large local financial institutions will tell the same story.
Many institutional fund managers would prefer not to publicise this trend. It might lead to massive withdrawals from investment portfolios, where allowed. I often meet investors over 55 who have substantial amounts of money locked up in badly performing pension/provident/preservation and retirement annuity funds. In most cases, they haven’t been advised to consider alternatives to move funds from such restricted portfolios to unrestricted portfolios, such as a living annuity or even a full withdrawal.
There’s an argument that by recommending offshore investments, I’m depriving the local economy from investment and job opportunities. Government should create the environment that attracts capital and offers the chance for free enterprise to flourish, which it isn’t. Capital flows to where it is made to feel welcome.