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Part 1: JSE versus the S&P500

How you would have performed had you invested in either.

Spare a thought for the foreign investor who, five years ago, decided to diversify away from the world’s biggest economy and stock market, the United States, and elected to put some money into the Johannesburg Stock Exchange (JSE).

What could go wrong?, one could have asked. After all, South Africa was at that stage the largest economy in Africa, a major producer of resources and to cap it all, was newly elected as the fifth member of the illustrious political economic grouping known as Brics.

The country still had an attractive international credit rating and economic forecasts for future growth by both the private sector and the country’s treasury augured well with growth well in excess of 3% per annum forecast well into the future….

In fact, the first year of such a strategy worked out very well. Returns in the SA market in 2012 was well ahead of the returns earned in the so-called mature economies of the world, but thereafter the wheels started coming off. 

Today, five years later the foreign investor—assuming he/she is still invested in the SA market—will have the following investment comparison to consider:

Total return in SA market(USD): 8.6%   (1.7% per annum)

Total return in US market (USD:91.7%  (14.7% per annum).

In sporting parlance it’s been a whitewash, a 6-0,6-0,6-0 victory at Wimbledon, the All Blacks playing the Springboks.

The returns over four years looks even worse. The mythical foreign investor would today have recorded a loss in USD terms of more than 10% compared to a potential return of almost 70% had the capital instead been allocated to the S&P500, the broadest measure of returns on the US market.

Over three years the comparative figures are JSE -8.3% versus S&P 27%, over two years -8.8% and 27% respectively . Only over one year, as a result of a stronger rand, did the JSE creep ahead with a return of 16.5% versus 10.2% for the S&P500.

So what happened?

It would be trite to say that President Jacob Zuma happened, but the destructive impact of the economic policies followed by the ANC happened to coincide with two global macro-economic trends, namely the collapse in the global commodity cycle and the resurrection of the US dollar as the supreme measure of exchange between countries. Despite all the anti-US rhetoric and talk of a US dollar collapse, the opposite has happened: the US dollar is currently at 14-year highs against every other measure of exchange, whether the British pound, the euro, the Japanese yen, oil, gold copper and even pork bellies.

Google how many so-called analysts forecast the collapse of the US dollar over the last number of years.

South Africa under Zuma not only chose the wrong friends (the Chinese and Russians), it also followed the wrong policies under the illusion that commodity prices only rise and never collapse.

Make no mistake. The previous regime regularly made the same mistakes in years gone by, leading to boom and bust cycles. History doesn’t repeat itself, but it rhymes as they say. 

The ANC government also seemed hell-bent on abandoning its long-established trading and investment partners from the West, suffering from the illusion that they will be replaced by foreign investment from China and Russia.

I recall a TV debate several years ago where this issue was discussed. Appearing on the programme was one Patrick Craven, former spokesman for Cosatu, who when asked who will replace the West as foreign investors replied with the glib reply that was to become the standard government one on this issue: “The Chinese are ready and waiting to invest if the West pull out,” was the smirking reply.

Well, the so-called West has been pulling out, quietly and without making a song and dance about it. I often wonder how much foreign investment has been scared off by our regular anti-Western (read former colonialist) propaganda. But the flood of money from the Chinese or the Russians has not been forthcoming.

The latest figures reflect that foreign direct investment (FDI) has dropped to ten-year lows. This doesn’t come as a surprise as the annual AP Kearney global survey has shown some two years ago that South Africa has completely dropped off the radar screen of the top 500 multi-national companies in the world.

The Kearney survey doesn’t attract much attention in SA but it is an annual survey among the chief executives of the top 500 companies in the world to determine which countries they are considering for foreign investment. Until 2013 SA featured prominently on this list but since then it has completely vanished. In short: we are not on the radar screen of foreign investors anymore. This is a deeply disturbing trend as SA needs foreign capital and technological skills to grow its economy.

Scaring away foreign investors

Every year this country sends a very large (and costly) delegation  to the World Economic Forum in Davos, Switzerland. And every year we hear the same platitudes that “South Africa is open for foreign investment.” But that foreign investment is simply not forthcoming.

Why is that?

Visa-regulations. Affirmative action. BBBEE targets. Corruption. State capture. Lack of corporate governance. Collapsing municipal infrastructure. Anti-white rethoric. Uncertainty about mining rights.

Take your pick.

Today the coffers are empty; very little was put away in the good times. Instead wages and salaries of the government sector were boosted way ahead of inflation to stifle any rising discontent in the ranks. Next month’s annual budget will most probably reveal the full extent of the empty coffers.

Local investors high and dry

Spare a thought too for the local investor who elected not to invest some money offshore five years ago. In global terms investors who have no or very little offshore exposure have suffered a very sharp drop in their global purchasing power. Don’t believe me? Just check out your latest medical aid premiums to see what I mean. Much of that increase is due to the sharp decline in the currency against the US dollar over the past five years and more. No more overseas holidays for you. It’s going to be East London rather than London for a while, I’m afraid.

The local investment community has done a very good job convincing investors that the JSE Top 40 index gives ample offshore diversification and that no further investments should be considered. I have written about this before and warned that even if you are an ardent believer in index investing, the JSE Top 40 index is the wrong index for you. If you consider yourself a global citizen with global investment objectives, then you should be investing in the S&P 500 index. The cheapest one is probably the Vanguard S&P 500 index fund, which can be had for an annual fee of 0.19% per annum.

While the JSE Top 40 has returned a creditable 84% over five years, it pales into insignificance when compared to the rand returns of the S&P 500 which produced a total return of 225% over the same period in rand terms. On an annual basis the respective returns were 13% for the JSE versus 27% for the S&P500. Despite the drop over the past year my biotechs have returned more than 30% per annum since I moved some money offshore. A truly life-altering decision for me, that is.

In short, rand returns in the US stock market has been more than double that of an investment in the local, comparative index.

Investors who acted on the good advice to diversify and invest in other regions of the world, have been well-rewarded.

At least the JSE Top 40 has given investors some protection against inflation, even though this protection has been minimal over the past one, two and three years.

Spare a thought therefore for investors who stuck with a ‘local is lekker’ – portfolio in recent years…..that is, local residential property, cash and fixed deposits. Such investors have suffered a dramatic decline in their living standard and global purchasing power.

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

Part two on the performance of the JSE against the S&P500 will be published on January 6.



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This is a good reality check on the currency weakness and how it impacts your investment returns in a global world.

should never invest in the hope of winning on currency fluctuations. it’s the underlying investment you are after. if you win on currency – its a bonus

spoken like the master he is. in addition there were some great individual buys on nyse (like bio’s and techs) to make the return even better. to me it is even not up for discussion – get yr money off shore – yet every time MH or moi dare to mention this – we are bombarded with the most bitter and hate responses that I wonder whether our message is being wasted. but fear not – I shall hang in here! out of interest Sydney home prices up 16% in last year.

Hello Robert,

Can you please send me an email to, I would like to discuss a few things with you regarding offshore investing as I’m a complete novice.

haha – I have found a follower!!!! wont give up my day job tho’ email on its way

Robert please elaborate on why the AU$ IS TOO high – i don’t see it with China looking to spend big bucks on infrastructure and likely to source quite a bit from Oz

Are you sending robert a trojan horse, lol?

Australians, maxed to the hilt. Highest personal debt levels in the world. When it pops, it’s going to be spectacular!

you’ve been reading the same guys as me! yes aus PRIVATE debt is at an all time high to GDP – 170%. this is mainly debt to fund the incredible prices for Sydney and Melbourne property prices. people go on and on abt this – BUT prices just go up. also remember that aus int rates are fairly low. it’s for this reason all my share investments are off-shore because I believe the aus $ is too high. what happens today – latest aus trade figure MUCH better than expected – so aus$ is UP!!!!!! if u r interested this was in our financial papers this week

“Sydney home prices up 16% in last year.”

That’s in AUD terms. In ZAR terms the return was only 2% (ZAR appreciated 14% against AUD in 2016), ZAR cash gave 7.5% (22% in AUD)- so very disappointing return.

So Magnus has changed his tune on index funds or was his only problem with SA index funds?

I myself am a proponent of having half ones discretionary investments (and the max 25% allowed in retirement products) in overseas markets, with new index unit trusts and ETFs coming out that just make it easier and easier.

If the U/T’s and ETF’s are Rand denominated then your funds are not offshore, and you can not move your “holdings” without following the prescribed dictates of the Reserve Bank

Indeed, unfortunately it’s not very easy to invest directly offshore for the average SA investor(and there is a information gap) and one generally has to have a nice lumpsum built up (say like $15 000 at Coronation, for example). Now for a normally salary earner like me (and not the average MW millionaire) it takes years to built up that size of discretionary investments, but a Rand denominated feeder fund is still a better place to build that up than a local fund.

MW needs to have more articles with step by step guides on how the average investors can invest directly offshore.

spot on – MUST get yr money into an account in YOUR name thru an off shore bank – not thru a local institution

In my opinion index investing in SA markets is slightly flawed, given the skew / bias found in local indices as a result of a small number of large constituent shares. I’m not averse to it entirely, but certainly think one should adopt a more active strategy in emerging markets including SA

@Supersunbird, you can easily invest directly offshore. Just open an international brokerage account with either Standard Bank WebTrader, Sanlam itrade, Saxo Bank South Africa, ABSA World Trader or PSG. Once your account is up and running, you can transfer the funds offshore to the broker’s nominated bank and then you can start investment directly on more than 40 stock exchanges

and if you panicked and started investing offshore at the worst time in Dec 2015 and through 2016 and the rand were to continue strengthening against the dollar like it did last year you will get walloped the other way..

jblack- You cant look at this over a short period you need to be looking at 3 years plus. Shorting the rand is probably our safest bet, question remains on how best to do it.

Nothing like a bit of good old hindsight!

And torturing the data to prove a point! I ran it over 15 years, and guess what, suddenly the JSE outperformed the S&P by more than 5% per annum. Imagine if you had JSE for the first 10 years and SPX the last 5!!! Magnus actually proves nothing with these articles, except that he is a snake oil salesman.

Louisk, may I ask if your model took the Rand/dollar depreciation over that period into account as well?

Time magazine has SA at number 10 in its list of global risks for 2017. Enough said.

Spare a thought too, for the SA investor who took his rands to the UK in 2008 at R15.5 a pound. Today it is at 16.80, a whopping 8% forex return over 8 years (less than 1% a year).

Also, if he bought a house with the money, its value would have halved since Brexit.

Fact is the whole world is a mess. At least in SA we don’t have to live with Bob in Syndey and his fellow nanny state Australians

Think I’d rather live with Bob in Australia than “SA’s Bob Mugabe” (read Zupta) in SA. Might be a nanny state but at least they have a state – we have a criminal cabal running the country. Too late to leave now.

always remember – its TIME IN THE MARKET – not timing the market!

Fifteen years ago my three children decided to leave SA and settle in the UK. Dad decided to remain. Over time they all bought homes of their own. To-day in Rand terms they are all far, far wealthier than their poor old dad who with the current exchange rate can’t afford to join them even if he wanted to.

But then again “Dad” would have slit his wrists by now if he had to live in that cold, dreary, miserable place where people drink as a full time occupation and are quite happy to p*ss away billions of Pounds every year just to believe in the fairy tale of a monarchy.

Leave the Queen alone! The Monarchy is an institution that glues the people together. 🙂

don’t feel too bad -i tried England and would not go back there if you paid me.

Wonder what will happen when we get a new government? Maybe a great turnaround locally! One just can’t invest totally offshore!

0.19%pa for the Vanguard S&P500 ETF??!! Where are you seeing this MH? Someone is robbing you 14bps as the TER for VOO is only 0.05%pa (well that’s what my clients pay anyhow).

Coreshares want to charge you +/- 0.45%pa for a similar exposure

What percentage of your investments should be offshore? 99.26%:

May as well make it 100% and avoid silly little amounts!

Thanks for the link to a great read patrickza.

I’ll think I’ll build up a stash of discretionary investment money in Satrix MSCI World Equity Feeder Index Fund and when decent enough amount to make it worthwhile move it over to what is suggested in the link.

My RA and Provident Fund will have to stay 25% foreign/75% local (I really wish it was rather allowed to be 50/50)

For those not sure how to go offshore – you could contact Maggie he will guide you and advise you which offshore funds to invest in. I personally taught myself by reading A LOT and I like allan gray platform. There are many other platforms but to me AG is easy and simple. I invest myself and save the fee Maggie would charge me. For 99% oaks it’s best to contact Maggie for guidance. Or Vestact or PSG. Their are many.

I have been following Magnus advice for a few years now. I didnt have money to invest outside of SA so I invested myself (being 27 at the time). I have now completed 2 years in London. It was nice sending money over at R23/£ but now its not that easy. We would rather live in South Africa as “wealthy people” than be a normal guy using public transport in a dodgy area. We are back now because SA is where we belong and the British messed it up for us a few months ago.

If you under 30, go oversees, travel the world and save money, come back when you have kids and enjoy the good life South Africa has to offer.

some real distorted thinking here! you leave SA BECAUSE of yr kids – to give them a safe and secure environment. unless you want your kids brought up in a country with highest murder rate in world and in top 10 of risky countries to live in. clearly you have had a bad experience trying to settle in UK. emigration is not easy and certainly not for people who were brought up with 24/7 domestic help. for me it was “born in s hemisphere- stay in s hemisphere!”

do you have domestics in OZ

Yes, they have – Just a tad more expensive – But imagine living in the same city as Robert 🙁 He just feeds on bad news (maybe a distant family member of Magnus?)

Finally, someone who’s actually walked the walk & who made an informed decision! (not you Robertinsydney)

I followed a similar path as MrT & am very grateful I did.

not long ago Viv Govender ex Vunani expounded on how the JSE was the greatest place to be invested – Viv if you are reading this , any comments ?

End of comments.



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