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2015: SA’s Annus Horribilis

But will 2016 turn out to be any better?

On November 24 1992 the British Queen, Elizabeth II, delivered a speech at the Guildhall in London to mark the 40th anniversary of her accession to the British Throne.

At this event she said the following: “1992 is not a year on which I shall look back at with undiluted pleasure. In the words of one of my more sympathetic correspondents, it has turned out to be an ‘Annus Horribilis’. I suspect that I am not alone in thinking it so. Indeed, I suspect that there are very few people or institutions unaffected by these last months of worldwide turmoil and uncertainty.”

She was, of course, referring to, among other things, the media frenzy surrounding the break-up of the marriage of her son Prince Charles and the late Princess Diana.

And so was resurrected an ancient Latin expression that has since become forever associated with someone or something having the worst of possible times.

For South Africa the year 2015 can rightly be called an Annus Horribilis. Or more colloquially put, we had a kak year…

Just when you thought things could not get worse for our country and people, it promptly did. You name it, we had it: political scandals, commodity prices crashing, rand sliding, credit rating downgrades, consumer and business conditions at 15-year lows, rising unemployment, electricity shortages, water rationing and drought together with the usual travails of surviving in South Africa.

And then, just as everyone was already packing the Venter-trailers and heading off towards who knows where, we had the by now infamous Nenegate, which truly rocked the country back onto its heels.

From being a bad but tolerable year for more than 11 months, on the evening of December 9, 2015 it turned into a truly, truly bad year.

For four days we had a glimpse of the raging fires of a financial inferno; a wildfire raging out of control. In two trading days the rand lost more than 10% of its value while the losses on the JSE was an estimated R180 billion as foreign investors fled. Repent or your country WILL burn, was the message from the markets to Zuma and the ruling political elite.

Had David van Rooyen not been replaced by Pravin Gordhan as finance minister, we would, I’m sure, have witnessed an almost total collapse of the SA financial operating system, which would ultimately have necessitated, among other things, a reintroduction of capital controls.

The final straw

But why was the firing of Nhlanhla Nene the catalyst for such a violent reaction? It represented, in my opinion, the final straw of foreign investors’ increasing unhappiness and impatience with the poor returns on their investments in SA.

It is important to remember that foreigners now own up to 60% of the market capitalization of most JSE-listed companies and as much as 40-50% of our bond market. But their patience is running thin, especially if one considers that in US dollar returns, their investments have made no return since 2007.

For how long can these foreign investors, mostly institutional fund managers, justify their presence in a country where the leadership is seemingly hell-bent on its financial destruction?

Secondly, the timing of the firing of Nene came just days after Fitch as well as S&P lowered their respective country ratings for SA. In both instances they explicitly issued warnings to the ANC government NOT to tamper with the relatively prudent fiscal policies the country has been following. Tamper at your peril and the result could be a downgrade to junk status within six months, if not sooner, they said. A week later our esteemed president did exactly that.

Zuma’s decision to fire Nene and replace him with Van Rooyen was followed up almost immediately by a rambling off-the-cuff speech, which can only be described as someone perambulating on the outskirts of sanity.

To the foreign investors it signaled that a downgrade to junk status of SA is only a matter of time, and therefore the reflex to “panic first”, kicked in almost immediately.

I don’t think that local retail, and in some cases institutional, investors truly appreciate what the potential impact of a downgrade by the international credit agencies on our financial markets will be.

But if one looks at what happened to two countries downgraded last year – Brazil and Russia – both incidentally part of the artificial political construct called BRICS, then we are looking at a possible decline in the stock market of between 20 and 35% and a currency decline of anything between 15 to 30%.

There still is a reluctance to invest money offshore on the basis that offshore investments are risky and, secondly, on the misplaced view that the rand will somehow miraculously recover.

Right now an investment in SA shares, listed property, bonds and currencies must be considered a very risky investment with a high risk of a permanent loss of capital.

I had several discussions with fellow South African holidaymakers on Mauritius over the holiday on this issue. “The rand always recovers,” was an argument often raised against taking money offshore at these levels.

And while they might be right in the short term, I have to disagree strongly over the medium to long term. Currency markets, the largest financial markets of all, are very efficient and the price of any currency represents the purest distillation of all the possible information about a country, its policies and economic indicators.

Outlook for 2016

As it is, the year 2015 was another torrid year for investors on the JSE. For the fifth year in a row – one the longest sustained periods of relative under-performance this century – the local equity market has performed extremely poorly, both in rand as well as US dollar terms. (See chart below.) This was a continuation of an under-performance that started at the beginning of 2011, when the rand was trading at R6.80 to the US dollar.

Screen Shot 2016-01-04 at 1.00.37 PM Screen Shot 2016-01-04 at 1.01.08 PM

It is also a reflection of the collapse in the commodity cycle, which has smashed the price of resource-rich companies such as Anglo American, Glencore, BHP Billiton, Assore and many others. Like all countries suffering from the illusion that commodity cycles last forever, we have no defense against a world that wants less and less (and at a lower price) of the stuff we dig out of the ground.

Take particular note of the relative under-performance of the SA stock market versus the S&P 500. For every rand return you made in the local market you made R3 in the US market over the last five years. When you compare the JSE returns over the same period versus my favourite sectors such as biotechnology and health care stocks, the ratio is closer to 1 to 6.

Yet local investors seem to operate under the illusion that merely investing in the JSE offers all the protection they need and that they do no need to consider the offshore investing.

We live in a world where the US dollar is king. The cycle of interest rate increases in the US has just begun and by the time it ends, whether driven by economic events in the US or elsewhere (China), we could end up with a rand closer to R20 than R12 or even R10 to the USD.

Look out for next week’s article: an update on my favourite sectors for creating global wealth.

*Magnus Heystek is the investment strategist for Brenthurst Wealth. He can be reached for ideas and suggestions on



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Well said Magnus!
My view, who should we blame for the ‘’kak’’ year? I think Jan van Riebeeck!
The down grading, twin deficits, strong dollar (long live the $ bulls), mismanagement due to cadre deployment, nepotism, corruption will not stop in 2016.
The Rand is never too weak, and weakened from around USD/ZAR 3.4000 in 1994 when the cANCer took office to USD/ZAR 15.5000 to date. The cost to buy one million US Dollars increased from R3, 4 million to R 15, 5 million in 2016.
An offshore investor who invested US $ 1 million in South Africa during 2007 received approximately R 7 million, which he could invest locally. If the same investor wants to buy back his US$ 1 million to disinvest, will have to pay R 15, 5 million (or they can only buy back US$ 645 k). Foreign investors will not return as they lost almost half their investments. The Dollar bull market will put all commodity currency and emerging market countries under immense pressure.
My view is that sunny SA will soon have to run to the IMF for help, or become a failed state!

I think they will run to the IMF **and** become a failed state, because if they get their hands on more cash, it will just “feed the greed”. People like Gordhan need to stand up for SA and stop pandering to the beloved ANC. Yes, there was the struggle, but it has now become a struggle of a different sort, a struggle for economic survival.

Magnus, where in your mind is the ZAR cycle going to bottom out ? mates of mine who are traders tell me that the curve suggests that $1:R20 is on the radar on a 5yr timeline. curves are obviously subject to certain market forces though … including interest rates.

It will not bottom out, the real question is the rate of decline. The Rand has been falling against the major currencies since it was introduced (with short upward blips) and I can not see why the decline would stop.

Go back and look at the long term chart. It has been a reasonably steady decline from ZAR0.80 to the USD in 1975 to today at ZAR16.48 to the USD. As long as South Africa is an emerging (or submerging!) economy, its currency will decline against 1st World economies

If 2015 taught us one thing, that is, that the ANC government will not alone decide the fate of the South African people. They too have a voice and the student protests and the Nene sacking showed us this. The ANC can’t make and brake as it sees fit although it would like to believe that it can. One thing is for sure- be prepared to be very surprised in 2016.

Not to mention the Springbok losses to Argentina and Japan, the first away test series loss by the Proteas in nine years and we won’t even mention Bafana Bafana. It was also a really kak year for MTN!

KAK Year 2015, Kakker 2016, Kakste 2018……2019 end of zuma term….hooray year! WILL IT BE TO LATE…..Rand recover to R10/USD….. The only way I see a recovery to the SA economy today is for ZUMA to step down. Just think what will happen. Limited fraud, rand recovery, job creation and no more Annus Horribilis.

ZUMA DO THE RIGHT THING FOR THE BELOVED COUNTRY…STEP DOWN and SA will stabilize……What will the impact be when ZUMA step down/sacked? Will the rand slide to R20/USD or will we see a recovery in the currency to R10. Is it really beneficial to have a HEAD of state that cost 169billion. ANC what will you do? Pay the ransom for one man or will you take the money. Come on now, corruption is big. There is R169billion to benefit from if we sacked Zuma

it worries me that you think the only difference between SA now and SA=some sort of holy grail is Zuma.

Zuma is not the only factor in the ZAR being at 16.50 to the USD. In 1975 ZAR 0.80 bought you a USD! Zuma has been around that long. Throughout South Africa’s history it has been prudent to invest your access capital offshore, and it is only recently that the SARB has allowed us to do this.

“Yet local investors seem to operate under the illusion that merely investing in the JSE offers all the protection they need and that they do no need to consider the offshore investing”. This is very true Magnus and the sheer utter stupidity of people, mainly white people who are supposed to be highly educated is really beyond belief. On the one hand you have these really irrational whites not seeing the writing on the wall regarding the Rand and their personal safety and on the other hand you have a bunch of corrupt incompetents trying to take the whites money as fast as possible fro mostly themselves. Who is the cleverer? Well the blacks of course. amazing display of unintelligent behaviour from whites.

I entirely agree with you. I just want to add that if you had posted this on Twitter or other social media, you would have been branded as a racist and then be forced to issue an apology, which no-one would accept, and would have ended up as a hashtag like #xeroxmustfall. It’s ludicrous but it happens. 😀

An investment in Rand into a global fund over 15 years would still be miles below an investment in the All Share or a good local general equity fund. If the window is changed to 10 years to give a higher weight to the last 4 years that the rand tumbled the global fund would be doing much better. It is always a matter of timing to get the asset allocation into the sector that would most likely perform better.

The advice of Magnus to move money into global currency when the rand was R6.50 to the $ is priceless.

I agree with you Magnus. I do however think that the President will finally break whatever is left to break in 2016 because I don’t think he is going to leave before 2019. He will appoint his successor and control him/her. Why leave early and face possible fraud charges with judges sitting on the bench and the NPA who you cannot control as he now does. One might say that all the financial advisors in SA, who have not been telling investors to apply for SARS approval annually and thus send as much money as allowed overseas since the forex law was relaxed, should be in serious trouble. Their advice has been 100% incorrect for a very long time and they are still doing it. Is it the commission they earn on local investments?!?

“Partners at Brevan Howard who go to work with the standard hedge fund promise of a 20 per cent cut of any profits they make for clients and a two per cent fixed fee shared a $120m pot of salaries and bonuses last year — even as its main fund lost money for investors”.

This is my annus horribilis event in 2015 as it reminds me of what I think happened in 2015 at Orbis. Sorry to go on and on about this! No more messages from me about Orbis and my unhappiness with their fee structure and I promise to sell when it gets over $180. I acknowledge that they try very hard and are very decent folks but those fees …….

That is the problem, they all dress the part and speak the Queens English, and you only know when it is too late.

it may never get to 180 – just get out!

appears orbis is linked to allan gray. went to a Sydney presentation of theirs and they have bet on a commodity resurgence. as I said “that is one big bet!”

If the only solution is off shore investing, and the average Joe who doesn’t holiday in Mauritius, is limited to 25% of his pension being allocated there – you don’t leave much hope for Mr and Mrs Middle Class…

mickey mouse land becoming junkland and if they carry on with all this
nonsense from racism to baby rapes it will become a zombieland where
they will be sucking on their minerals until jesus comes.

as the saying goes – just when you things can’t get worse – they do! its not 2016 – its the next decade – that’s how long the commodity downturn will last. sa has run out of money and will habve to pay penalty rates to borrow off-shore. in the meantime the overseas investors will become vary wary in borrowing to a failed state. the cadres will be very unhappy – very unhappy. so expect daily demonstrations – those areas of white affluence to be under constant attack. its not a pretty picture – in fact its a horrible picture. the country needs to be re-built from the bottom up AND the effects of the lands act of 1913 needs to be reversed once and for all

Thanks once again Magnus for factual points in comparing investing locally vs global. One point I will mention it is not that bad for someone earning, living and spending in ZA (most of us) if you compare it to someone in the US. Without income re-invested an investment of R100 in the ZA market via the All Share for the last 15 years would be worth R550. Had you invested it in one of the best global funds in ZA you would have R400. The US investor via the S&P500 would have seen the $100 going up to only $137.
This is against a period that the Rand fell all the time against hard currencies.
If one looks at the value of investments it is only the last 4 years that the rand took a real beating.
10 out of 10 for advising your clients to take money and invest in $ when the rand was at R6.50. With the above values one can understand that those that got burnt in 2001 would not want to be in the same position.
The key to unlock wealth would still be to diversify.

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