Proof offshore investing beats the SA option
STOCK MARKET DOUBLES RETURNS SA’s equity market has been worse than most realise for the past four years.
y recommendations for most South African investors to diversify their investments is not based on a whim or some anti-SA sentiment I have, as some people seem to think. It was based on what I would like to think is solid, research-based recommendations.
Until 1997, South African investors were not legally allowed to invest any of their money offshore – a severe impediment to global wealth creation. This situation was improved by the introduction of foreign investment allowances which started at R200 000 in 1997 and gradually increased over the years, where you can now take R11 million offshore a year. Foreign exchange controls have been scrapped, except for the very rich.
South African investors were initially loathe to take some money offshore. First, there was the 2000 to 2002 tech boom/ bust which put investors off, followed by a golden period for local investments on the JSE, which started in 2001 and continued until the Great Financial Crisis of 2008, which was characterised by rising commodity prices, a strengthening of the rand and several upgrades to our international credit ratings.
It would have been foolish and downright reckless to recommend offshore investments when all the cards were falling in favour of commodity-producing emerging countries such as South Africa. But when the facts change, you need to change your views and recommendations with them.
By 2010, it was clear that the macro-environment was changing for the worse, especially for SA [and] that the commodity cycle was looking toppish and heading lower. As a result of this downturn, our terms of trade, and some fiscal own-goals by the ANC-government, we also saw the start of our international downgrades to junk status by two of the three large credit ratings agencies. Simultaneously, the tech and biotech boom was starting in the US, an investment area we don’t have in SA.
To disprove the contention that people who took their money out when the rand was at R17/USD lost a substantial amount of money, there were three different investment options: the JSE, Orbis Global Equity and the Orbis Japan fund.
East or west, you would still be ahead in the relative investment game as opposed to leaving your money in the SA equity market.
Local investors don’t seem to realise just how poor the local equity market has done over the past three, and soon four, years. The results have been disastrous as local companies shunted billions of rands offshore over this period of time.
Japan not only now beats us on the rugby fields, its stock market returned more than double the returns earned on the JSE over seven years and more.
Offshore investing is not always about being right or wrong. It’s about diversification.
Some investors should not have any money offshore – their risk profile does not allow for this. Others, again, should have 100% offshore if their long-term objective is to emigrate to another country or to retire there. It all depends.
Magnus Heystek is investment strategist at Brenthurst Wealth.