You know you’ve achieved a certain level of fame/notoriety — take your pick — when your church-going secretary sidles up to you first thing on a Monday morning and in a conspiratorial whisper tells you “they were talking about you at church yesterday”.
Trying to keep a straight face I quickly scanned my recent history for something that could have led to this.
My mind raced for a brief second to try and establish what could have been the cause. Adultery? No. Drunkeness in public? No. Blasphemy? No.
I know I haven’t been to church perhaps as much as I should have in recent years, but this is not so uncommon anymore.
Perhaps in another life, many years ago, my personal behaviour could have caused some flutter of discontent among the congregation, but I have been a good boy for many years now….
“Was it the dominee? I asked.
“No,” she replied, “it was a group of elders that was discussing you during tea after church.”
“Why on earth would they be discussing me?” I asked perplexed. After a slight hesitation she said: “They say you were wrong about the rand.”
She said this with such a stern face as if being wrong about the currency could have had me crucified and burnt at the stake.
I almost burst out laughing.
“Shouldn’t they be more worried about things like sin, forgiveness and eternal life than discussing more trivial issues such as the short-term movements of the rand?” I blurted out.
So there you have it, dear readers, being wrong about your currency is now deemed to be breaking the 11th commandment.
Seems that even the more religious among us also have an interest in the movement in the local currency. I thought it was only central bankers, fund managers, advisors and investors who watched the movement of currencies like a hawk. Not so it seems.
So, was I wrong about the rand?
Offshore investing not only about rand weakness
First, some context.
I have been recommending offshore investments since about 2010. It was my view — publicly stated on many platforms including several columns on Moneyweb — that the rand was overvalued relative to the US dollar and that following a decline in the commodity cycle (always key in such a forecast) plus the rising balance of payments-deficits and several downgrades the rand weakened from R6.80 in 2011 to above R17 just after the Nenegate fiasco in December 2015.
The blowout of the rand in the days during these tumultuous days of political drama would have been a runway for further weakness of the local currency to R20 and perhaps beyond. But that was not to be as this period of Zupta-induced political turbulence coincided almost 100% with a very gentle but noticeable upturn in the global commodity cycle, which has continued to this day.
Although substantially less in intensity than the previous upturn in commodity prices (2001-2008) it was nevertheless enough to offer some kind of support for all commodity producing countries, especially the rand.
The year 2017 also added additional support for the local currency as a major swing towards emerging market currencies ensued which, aided and abetted by a collapse in the US dollar in the last two months of 2017, coincided with the surprising win of Cyril Ramaphosa as the new leader of the ANC and soon to be president of the country.
This came as an injection of adrenalin for the rand, which powered its way against the US dollar from R14.50 early in November to below R12 at the end of the year, becoming the best-performing emerging market currency against the USD.
And did I add that the balance of payments was quietly getting bigger and in December last year was the largest in surplus in 27 years?
It couldn’t get better and to some members of the popular press in SA, Cyril Ramaphosa was about to start walking on water, such was the euphoria and hoopla about his triumphant march to, first Luthuli House, and then soon to the Union Buildings.
But investment returns over the long term are not only determined by currency weakness/strengths. And also is the choice for SA investors not only a binary one: in other words either local or offshore, depending on the currency.
Despite the surge in the rand over the last 12 months, was the JSE not the best-performing country as far as investment returns are concerned? Most Asian countries, including China and Japan and several sectoral funds (technology, biotechnology, pharmaceuticals etc.) still outperformed the local stock market. See chart below.
SA versus the world over 5 years
Rushing out, not in
Are investors rushing to repatriate their money back to SA? It would seem as if there was, instead, a rush of money out of the country to buy dollars below R12 or so. Both Allan Gray and Foord have announced the closure of the offshore window for now as they both have reached their limits in terms of Regulation 28, which determines how much money they can take offshore.
It seems as if the forward-looking investors have used the current bout of rand strength to top up their offshore investments.
The diversification argument is now stronger than ever. If you haven’t built up some foreign investments into funds and sectors not available to you in SA then now is a great opportunity. Can the rand get stronger? Is it going to weaken again?
I don’t have that kind of divine insight in the short term.
I also know that there are many investors who should never invest their money offshore or into offshore assets. These are the investors who cannot handle volatility or short-term declines in their investment portfolios. These are also the investors who keep on tracking their investment returns in rand and not in global currencies.
Short-term movements in the rand tend to be very unpredictable and very sudden. We could easily be back at R14 or more if interest rates in the US start rising again. Or then again, maybe not.
But to have all your assets in one country whose economy is not showing much signs of life at the moment simply is not a great investment strategy to follow if you want to truly build global wealth.
Magnus Heystek is investment strategist at Brenthurst Wealth. He can be reached for ideas and suggestions at firstname.lastname@example.org.