Let’s be honest about offshore investing

Call me stupid; call me fat, but don’t call me a figjam.

On a beautiful and balmy Sunday morning on November 16 this year, I joined thousands of spectators to watch over 33 000 cyclists take part in the Momentum 94.7 Cycle Challenge. I was there to support my gorgeous wife compete in her second race.

It is one of those exhilarating experiences that brings South Africans together.

As I watched the thousands upon thousands of cyclists rush past Dainfern, I started thinking ….I guesstimated the average cost of kitting out a cyclist – taking into account all the equipment, including the bicycle, helmet, shoes, clothing, sunglasses and everything else it takes to become a modern-day gladiator of the roads – at around R35 000.

Do the math: R35 000 multiplied by 33 000 comes to around R1.1 billion.

Most of this equipment comes from abroad: either the USA, Italy, France, Japan or Korea.

Deducting a profit mark-up of say 40% to the local dealers, about R700 million of the total purchase cost for the day was rands converted into US dollars or euros and sent abroad.

At the finishing line thousands of weary but satisfied cyclists came to a standstill and hauled out cellphones, calling wife/husband/friend/colleague to tell them their time. I noticed brands such as Apple, Samsung, Sony, LG, Huawei etc … all imported. Assuming an average price of R4 000 per phone, that’s another R130 million that left the country.

After the celebrations were over, thousands of motor cars left the vast makeshift parking lots. I saw BMWs, Mercedes Benzes, Toyotas, Volkswagens and such like, again all imported, either wholly or partially. What would that have cost in foreign exchange? Say R3 billion, R4 billion?

They then all drove to their homes across. You can be sure they switched on their TVs and/or recorders to watch the race, after stocking up with something cold from another imported fridge. Rands converted to foreign currency.

Living in a globalised world

I’m sure by now you get what I am trying to say. We live in a globalised world where the lines between domestic and internationally produced goods have blurred. We don’t even think about the fact that we are buying an imported item, supporting an international company making profits that are repatriated offshore. All we think of is whether it is a good product and worth the price.

With the holiday season coming up you can be certain that our international airports will be clogged with South Africans heading for ski trips in Europe or holidaying in Mauritius … our money converted into dollars, pounds and euros.

Why then this intensely emotional and negative reaction from some to my suggestion last week that local investors should consider increasing their offshore exposure, to as much as 100% of their overall liquid investments? Why is it OK to spend great chunks of your money on imported goods but not to invest your money offshore?

Why don’t you just f#*k off!

There were several nasty emails directed at me, but one in particular stood out and got me thinking about this wholesale hypocrisy. It came from a certain gentleman who, in his working career in the advertising industry, was something of a guru. He is responsible for some of South Africa’s most iconic and memorable television advertisements, particularly for a certain foreign car maker, and as such is partly responsible for selling hundreds of thousands of imported motor cars, declaring dividends running into billions of dollars every year, payable to a foreign parent company.

This gentleman, now retired, sent me a vicious email in response to last week’s article. I was called all kinds of names, told I made “his blood boil” and that I should “f#*k off out of the country”.

There were others along the same line, namely “if you don’t like it you can leave” and “bugger off, we don’t want your type in this country”.

I most certainly also did not expect the reaction from, among others, the FW De Klerk Foundation’s Dave Steward or DA Parliamentary Leader, Mmusi Maimane.

In a recent column on Politicsweb it was the same Steward who wrote a fear-inducing warning about the manner in which SA Communist Party members have infiltrated most chambers of power and influence in SA.

Also, in a recent speech he said, “This (NDP) involves “the elimination of apartheid property relations” through the redistribution of wealth, land and jobs from whites to blacks by means of affirmative action, BBBEE and land reform. The final goal of the NDR is the establishment of the ‘National Democratic Society’ that will be characterised by demographic representivity throughout government, society and the private sector in terms of ownership, management and employment.”

But when I suggested that ordinary, law abiding and taxpaying South Africans take heed of this potential threat to their assets in the only manner that makes logical sense, ie invest offshore, he had a lot to say about it.

Even the DA jumped in with their version of what the political future looks like. According to Maimane Zuma’s days are numbered; the ANC is disintegrating before our eyes, and it’s only a matter of time”… blah blah blah.

If you want to take investment advice dear gentle readers, from a politician and a political think-tank, be my guest.

Johann Rupert joins the fray

There was very little in my article that has not been said by many other commentators and economists in recent times. I never used the word “precipice” and I never suggested that people should leave the country. Perhaps the only criticism I have of my own article, in hindsight, was the use of the sentence “hurtling towards being a failed state”. Perhaps it was a tad too emotional and suggestive of an imminence, which obviously there is not. A better description should have been “lurching or stumbling towards being a failing state”.

States never fail. There is no such thing as a failed state. There are only countries improving the lot of their citizens and then there are those countries that are not functioning as efficiently as before.

But states can be failing in certain functions.

In many respects South Africa is failing and no amount of name-calling is going to change things. If you don’t think that developments at Eskom, SAA, SABC, the Post Office, to name just a few, are not worrying signs of a deep-seated dysfunctionality within government, then believe what you must. But then you must also be prepared to live with the consequences of your investment decisions ten or 20 years from now.

Earlier this week Johann Rupert, billionaire son of the Rupert-dynasty, had something to say about the state of SA. I loved his use of the quote by Ernest Hemingway in The Sun Also Rises; it very aptly sums up our current financial situation. “How did you go bankrupt?” the lead character in the book was asked. “At first gradually but then suddenly,” he replied.

Offshoring still best investment advice in town

The recommendation to readers to increase their direct offshore investment was, I feel, good solid advice, which involves the very crucial element of diversification.

I am by no means alone in saying this. Read almost any fund fact sheet from any of the top investment houses in SA and the message is the same: offshore markets offer better medium- to long-term opportunities than the local market.

Last year at the annual Investment Forum at Sun City, when asked how much of his fund he would like to invest offshore, Allan Gray’s Duncan Artus answered: “100%”. This statement sent giggles through the 700-odd financial advisors in the audience, thinking that perhaps Artus was joking, but he wasn’t. His explanation was simple: “SA is a small economy, representing less than 0.5% of the global gross domestic product and in an ideal world, in the absence of exchange control regulations, I would like the freedom to invest almost all the money in my fund offshore.”

How does that differ from my advice last week? Do we call Artus a “parasite” and a “leech?” No, we don’t, because we know, deep down, that he’s correct.

That’s why Allan Gray is such a top-performing fund house and currently does not have any offshore exposure it can offer to new clients: it has used up its entire allocation allowed in terms of the forex laws, as have most other local fund management companies.

To end up on a personal note, for the record, I do not have an answer when people describe me as “stupid” or “an a**ehole”. It might be true or it might not. No one will ever know, least of all me. But don’t call me a figjam, as No1coolestdude on this website keeps on doing. I have never heard that expression and don’t know what it means.

I also know that I am carrying some extra weight at the moment. It wasn’t always so. Until about ten years ago I was one of you: running marathons, playing league squash and playing golf off a low single handicap. That all changed in the blink of an eye when, trying to replace a light bulb, I tumbled down a ladder and broke my hip. Three years of denial followed during which time I tried all kinds of treatments to heal the offending body part until, unable to take the pain, I had a hip replacement.

As luck would have it, the replacement instrument – the Du Puy, designed and manufactured by Johnson & Johnson – was faulty, leaking cobalt and all kinds of dangerous stuff into my body. This has led to massive lawsuits against Johnson & Johnson around the world including a class-action suit in South Africa by about 300 recipients, including myself, currently under way. A long story short: when in such pain, moving around and being active becomes very difficult. No amount of banting or ranting makes any difference: you put on weight. A second transplant now beckons. I do not wish it on anybody.

*Magnus Heystek is the investment strategist at Brenthurst Wealth. He can be reached on magnus@heystek.co.za with ideas and suggestions.


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