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Nightmare on Maude Street

Investment returns that keep me awake at night.
This way to the horror show … Picture: Moneyweb

Can you remember watching television as a child, and your mother or father would suddenly cover your eyes when something risky came onto the screen, either violence or sex, so that you wouldn’t be frightened, or worse?

Even as an adult your instinctive reaction to scary movies – think Wes Craven’s Nightmare on Elm Street or Stephen King’s The Dead Zone – is to shut your eyes, hoping the nightmare will soon go away.

So here is my warning to queasy readers: if you scare easily, don’t read on.

Cover your eyes and go directly to the next article. But I must warn you that while such a tactic might seem to be helping, it unfortunately won’t make the boogie-man disappear. For he is right there, every day and every time you open your investment portfolio linked to the Johannesburg Stock Exchange.

For all we know King is busy furiously bashing the keyboard working on his scariest movie ever, Nightmare on Maude Street and the monster that’s coming for your personal wealth, pension fund and investment portfolio.

Of course I am being theatrical, but the performance of the JSE – SA’s premier investment vehicle – is becoming something of a horror story. The only difference this time is that it’s real and no amount of eye-clinching and hiding behind your mother’s hands will make the unpleasant reality go away.

I have written many articles about the poor and lagging performance of the JSE over the past couple of years, often incurring a barrage of criticism from different quarters of the investment community, even from fellow columnists. But I’ve noticed that the criticism is slowly receding. In fact, it has gone quiet indeed. An eerie silence, one could call it.

It’s becoming harder and harder, when analysing the numbers objectively and clinically, to come to any conclusion other than that the JSE is not the wealth generator it used to be. And the outlook, in my view, is not going to change very soon. In fact, it could easily get worse. The current bout of horrific returns, in both real and relative terms, is bound to continue for a long time.

Many analysts would like to pretend that the current downtrend is cyclical and that the time to buy is near. Or the other porky about ‘reversion to mean’, which is often thrown out there as an allure to invest. Remember the value-style investors?

This is akin to whistling when walking through the graveyard, hoping that it will keep the scary monsters at bay. I would rather suggest that the issue is structural, deeply damaging to the economy and ominous to future investment returns. Even the oft-touted argument that the JSE earns 65% or so of its revenue offshore and is a rand hedge bourse, seemingly does not hold water anymore.

The recent bout of weakness in the rand has not translated into better returns as it did during previous times of rand weakness. The reason? The downturn in commodities means that we are receiving much lower prices for the commodities we are exporting. Furthermore, cost push pressures on our exporters (think rising labour costs in the gold and platinum industries) means the profitability of our exporters is under pressure. And how can our industries compete with their global counterparts when Eskom’s sharply rising costs are pushing them into bankruptcy?

The worst of them all

In short: when compared to the global investment regions of the world, in rands or in dollars, over periods from one to five years and even longer, the JSE has been the worst performer of them all. Even more worrying is that when the performance of the JSE is measured against (a) our peers in emerging markets, (b) our peers in the Brics grouping and (c) against stock exchanges in the grouping known as frontier markets, the JSE is again stone last.

Yet I find little media coverage about this horrifying trend, Moneyweb aside. As a consequence, the average investor is almost oblivious to the unfolding wealth destruction happening right in front of our noses, whether we would prefer to deny it or not. I don’t believe in conspiracy theories but I sense that the popular media would rather not cover this issue, the same with the disaster that we know as the residential property market. Super-duper optimistic press releases about the property market appear on many popular websites with ease, but serious and forward-looking analysis based on facts is simply binned. It doesn’t suit the narrative, it seems, that everything is fine. 

Read: Residential rental growth now below inflation

See here for yourself, a table with the investment returns of the JSE in US dollars: the numbers don’t lie. Over five years, investors on the JSE haven’t made any returns in US dollars. Compare this to the returns earned by investors in the USA, Japan or even Asian Pacific countries (see first table).

The second table shows the returns when converted to rands. Here too the same story, even though the rand actually strengthened for a large period of this time, from end 2015 to beginning 2018. This strengthening of the rand could not conceal the poor growth metrics of the SA economy and the companies that operate within it.

JSE vs the world in dollars

JSE vs the world in rands

But what about the performance of the JSE when compared to our peers in the emerging market universe? Here too a kind of a nightmare is unfolding. For most of the 20th century the JSE was probably one of the best or even the best investment destination for global investors, far outperforming our emerging market peers. A study by Credit Suisse some years ago highlighted this fact, but this performance was based on the gold and diamond booms of the previous century, plus the massive industrialisation that happened from about the 1960s onwards to 1990, when the gold boom started petering out.

Industries collapsing

Since then we have witnessed a slow but relentless collapse, first in gold mining, then platinum mining and now the construction and manufacturing industries. The massive consumption expenditure boom fuelled by easy credit from around 2000 to around 2008 has also come to and end, which is evident today in the profit growth (or lack thereof) of SA’s retailers and granters of credit.

So it’s not correct to say that the current bout of weakness in the rand and markets is purely an emerging markets story. It’s also a story of our own making and is a reflection of 10 years of economic mismanagement by the Zuma regime. This has cost us all dearly, in individual terms and as a nation. Per capita we are all significantly poorer than 10 years ago.

This is evident in many areas and is easy to measure: car sales, new home construction, overseas trips, rounds of golf games, attendance at rugby games. Last Saturday’s rugby rest between the Springboks and the Pumas attracted a mere 24 000 spectators, the lowest test numbers on record. The All Blacks still seem to draw full crowds, but that is about all.

And just when we thought we had seen the worse of it, along comes the ANC, spearheaded by Cyril Ramaphosa, with its ill-conceived plan to expropriate property without compensation. So far it has been nothing short of a disaster. The message from the ANC has been garbled, convoluted and outright stupid.

The world’s financial press, including the Wall Street Journal, Bloomberg and Reuters, has warned that such a strategy – if pushed to its ultimate conclusion by the die-hard Marxists in the governing party — could only plunge this economy deeper into a death-like spiral from which it will be difficult to recover, if ever. The comparisons to failed countries such as Zimbabwe, Venezuela and others do not sit well with those foreign investors from whom CR would like to extract $100 billion over the next five years.

The markets – in the form of the JSE — are signalling that they do not like this policy one bit. So far this year the JSE is down 2,8% in rand terms while the S&P 500 is up almost 30%, the MSCI World Index is up 22%, even the out-of-favour MSCI Emerging Markets index is up 10.2%.

In dollar terms the JSE is down 21% this year.

Your survival strategy

So, how much of your investments should be onshore and offshore?

I am consistently asked this question and my answer hasn’t changed in almost seven years. If you own residential property (non-performing) and belong to a private sector retirement fund, also non-performing due to the fact that it is controlled by Regulation 28, the answer is 100% offshore.

Yes, that’s right, 100%. Older investors close to retirement and even in retirement need to have a serious look at their respective investment portfolios and asset allocations.

Are you older than 55 with money in retirement annuities (RAs) or a preservation fund? Then consider moving it across into a living annuity where you are allowed total freedom in terms of where you want to invest your money, even 100% offshore if you wish to do so. Most RAs haven’t beaten the inflation rate over one to four years, soon five years.

Younger investors should also consider postponing their first-time property purchase and rather consider renting. But that would have the property-worshipping fraternity frothing at the mouth, accusing me of being guilty of things worse than blasphemy.

I often ask myself why would 62% of people in Vienna, Austria – one of the wealthiest cities in the world – rather rent their properties than actually own them. Perhaps they know something the rest of us don’t.

Younger investors should, instead of just being slaves to technology, rather invest in this sector. I have my children’s investment allowances all invested in offshore equities, in funds such as the Mi Plan Global Macro Fund, Sygnia’s 4th Industrial Revolution Global Equity Fund, and even the Counterpoint Global Equity Feeder Fund which is now run by Sam Houlie, all producing returns in the teens and twenties.

I find great joy in discussing their respective investment portfolios with my teenage daughters and young adult stepdaughter, opening up their eyes to the links between their personal consumption (Google, Facebook, Netflix, Apple, Samsung et al) and their investment returns.

Hopefully this is a lesson they will put to great use in life.

I have also convinced them that personal ownership of a motor car is a relic of bygone era. They all make extensive use of Uber and only rarely ask Dad for his bakkie when they take longer trips. It’s a good thing I sold the Ferrari when I did. 

PS: My Ferrari portfolio, almost six months old, is up more than 20% since inception. More about that in the next column.

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

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COMMENTS   62

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Sensible and pragmatic article. Mr H has proven himself correct with facts. 100% offshore is the answer. JSE is sick. Mining, retail is dying with the dying SA economy. Now in stagflation. No growth and inflation above 5%

55 Million people suffering because of Mr. Zuma and Mr. Malema, and none in jail.

A person works hard for a year to save for retirement, you pay your taxes, you spend hours in traffic because of non-working traffic lights, we get drowned in political threats of one sort or another.

And then all the saving and investing is almost a waste!

I see Bain and Co (Global management Company) now implicated in SARS destruction – McKinsey @ Eskom… All world class companies…

Excellent article, as usual.

Numbers speak for themselves:

$1 invested in Total US market (VTI) on 1/1/2008-Present value $2.72
$1 invested in South Africa MSCI index (EZA) on 1/1/2008-Present value $1.23

europe currently (especially germany / berlin ) is experiencing a high shortage of stock of available residential property, since the government left it to the freemarket to sort out – it is now all being bought up by rich investors for speculation purposes. thus, 38% of austrians owns property renting it out to the “62%” that can not afford property. so this is just due to the nature of the european environment – On the opposite side – in the USA where home ownership is approx 65%, – albeit at much lower levels than previously, having “35%” renting. a clear switch around from the european situation. if you owned property in austria – any decent property in Vienna you would be a $ millionaire. nothing wrong with that.although not financially possible for a young person.

What a wonderful uplifting article. Just what the country needs. Congratulations Magnus you have now overtaken “Beeld” and “Huisgenoot” as the bearer of bad news. Why not do an article on the pay of the JSE directors versus performance of their shares – A large portion of JSE companies have significant offshore earnings yet has under-performed the market – Maybe its part of their plan “B” to retire overseas. Speaking of a plan B – The country is awash with consultants selling plan B’s – Most of them have no clue of the tax implications and actual residency/citizen ship requirements. Go look at the property prices in Western Europe – Salary earners are priced out of the market – Most families share a residence (nothing to boast about). So Magnus seeing that you have so much insight into all things – If we make to president, how would you deal with the issues in SA? But then your target market is not the unemployed youth with no hope. It’s the wealthy South African that probably already owns a Villa in Mauritius (plan B) and spends his time bitching and moaning about all the issues in SA.

Are you serious? You criticise him with no facts at all? Are you all a dagga smoker like most of the cabinet.

Why do you think people want 2nd citizenship? Leave family friend and home?

Maybe because Mr H spells out facts that you do not want to see.

Now our anc clowns have Mr trump s attention. ..great… look at turkey and venuezela.

We get nothing right…and are in stagflation. …growth 1% ..inflation 5% and rising

We all know the state of the economy in SA – Not disputing the facts – But we all have choices – Either be part of the solution or be part of the problem – Any reasonable financially literate person would have invested offshore by now – You don’t need Magnus to tell you that – SA is not Turkey of Venuezela – The Rand is a proxy for most EM currencies – Its highly liquid and easy to trade (because of our highly rated banking systems). The 2nd passport space is being flooded by highly suspect advisers that have little or no knowledge about international tax planning and no guarantee residency structures – If you have enough money you can get a passport in any country (no matter how dodgy you are – All designed by 1st world trust/family office companies, hungry for fees).

Mr H is correct in his criticism and in his investment choices.
He would be a lot more positive if SA was not hamstrung by the numnuts running the country promising the unemployed youth jobs(how!) and people land.
If it needs negative it should get it – and get it without reserve – if you whistling in the graveyard it wont save your or my money.
So toughen up sweetie. We in a war.

Truly Gemini-like I said before-your twin must have gotten all the brains or you smoking some serious stuff.

I would expect no less for a MH disciple 🙂 Quick to judge but short on meaningful solutions

If Magnus is in error when pointing to the facts (‘bad news’) why do you not enlighten us with the wonderfully uplifting positive news that you allude to (and that the rest of us misses)??? The ‘unemployed with no hope’ would do better with just about anyone (especially those who are bitching and moaning about all the issues in SA) than with our criminal, thieving, corrupt and incompetent ‘governing’ mob-in-charge. Please refrain from shooting the messenger – would you criticize a corruption whistle-blower in the same way?

Gemini, you are proving yourself to be an ostrich with your head very deeply buried – or you are totally out of touch. I am 100% offshore, showing returns that Allan Gray and Coronation can only dream of, with my worst 2017 Investment Trust returning 18.3%. Don’t criticize just because you think it is patriotic – it is dumb.

Dear Experienced (experienced in what may I ask) and Evika – I don’t have my head buried in the ground – Here are the facts:
The offshore returns have been superior (I never argued that point) – I also hold direct offshore investments (As I have stated countless times)
My point is that the country has a bit of hope since Zuma was replaced
I have lost family and great friends that have emigrated (so don’t tell me I don’t know what I’m talking about or assume you know me).
Just where do you think the country would be if Zuma was still in power
We should celebrate the fact that he was removed (a sign that some of the processes still work)
Although I would also like to see a few corrupt officials in jail that process will not be easy or fast
There are some green shoots appearing (SOE, SARS etc) – The wheels of justice turns slowly if you have enough money to frustrate the process
Go look at the guys representing all the corrupt leaders – They would do anything for money. All pillars of the community and “church going” folk.
Money has no colour (ie Why is Mr Jooste not being prosecuted).
Most of the companies implicated in the tender fraud are OFFSHORE companies – But off course they can do no wrong?

Stop complaining and start building or leave if you see no future

Hi Gemini. I understand one’s call for “be part of the solution” or “let’s start building SA again”. Very noble.

I’m of the opinion, IF there was a real solution for SA, it would’ve been found many years ago. Since the 90’s I can recall people want to become “part of the solution”….so WHY no workable solution has been found as yet?

In fairness, over the years, many analytical people keep on writing articles (and books) putting forward practical socio-economical proposals/solutions for SA, that makes economic sense for the betterment of all SA citizens. I can also copy/paste my old Business-/Macro Economicts varsity books…..BUT if the POLITICAL WILL is lacking or unwilling to implement it, one’s energy is better spent to search for foreign residency visa/requirements, taxation & living costs in other countries (i.e. SA became a lost cause under the ANC or EFF). Energy thus better directed to search for a lifeboat, instead to find the best seat on the Titanic…

We all want to see things improve, and start “building” (i.e. investing in SA), but Govt needs to make a 180-degree turn by creating attractive environment in supporting businesses to flourish. Reduce red tape / reduce power of labour unions, relax labour law / reduce taxes to make SA a low-tax country / sort violent crime out / and corruption / to have a pro-business stance / e.g. execute any citizen who does copper-cable theft or does damage to infrastructure such as burning railway carriages, as treason / no place for people to have anti-business or socialist rhetoric or simply those who loot / …..and global & local businesses will WANT TO be in SA.
Fairy tale world perhaps? Then WHY rebuild the same wall over-and-over, when others try to break it down. Rather “build” somewhere in a business-friendly foreign country.

Hi Michael – Thanks for playing the ball and not the man – Yes, I’m a bit of a dreamer – You are 100% correct about the political will statement – Unfortunately the majority of the voters in SA are not the tax payers – No “freedom fighter” organisation has ever successfully transitioned to a effective democratic ruling party – Interesting view on a low tax country – Most developed economies have lowered corporate and personal taxes but they have increased there budget deficits by doing so… The mighty USA cant even repay their debt – It will be interesting to see what will happen to the stock market in the US when rates start going up.

100 correct and true, well written. The JSE management board requires scrutiny.

Not enforcing own regulations, case in point, the Steinhoff debacles.

This is a great opinion piece but not a good forecast article. You are right about investing offshore not about the US market.

Unfortunately you will be wrong about the SP500 when the next bubble pops. The free money that was lent out ZIRP has allowed companies to buy their own stock and therefore pushed the prices higher, their factories have not produced more goods. This was illegal in 1980s.

The S&P/Case-Shiller IS National Home Price index is now higher (203) than it was in June 2006 (185) the boom before the bust June 2008 (166) and bottom (134) in Jan 2012.

Now is the time to buy Gold, BTC, and other disaster hedging assets.

I have two RAs and both doing DISMAL! The one grows at 0.7% a year – WOW, might as well put into a savings account!

SA has sadly hit the demographic wall. Let’s look at some facts: 16 million grant beneficiaries and less than 9 million taxpayers. Population growth has exceeded economic growth for a number of reasons and remember that is exponential.

The solution: be on your toes and emigrate if you can!

Sorry to hear about your dismal RA Fund returns 🙁

My own RAF’s have done THREE TIMES BETTER than yours at a whopping 3% p.a. the past two years 😉

…I think one of the RA policies came close to a 4% return (after costs), and I became overjoyed with tears *lol*

Mr Heystek mentions some locally-managed funds in the article. All worth exploring. I wonder if he has some opinions on some specific US-traded ETF’s such as those offered by Vanguard, iShares and the like…the first step is obviously locally-managed funds with international exposure, but as a young person considering myself a global citizen I feel more comfortable with some funds directly in a foreign bank.

You can invest directly from SA into foreign funds via most decent platforms or investment houses. Magnus was just referring to this being managed (ie you doing the admin) locally. With these funds, there is no compulsion to bring the funds back to SA. Speak to an independent advisor for best advice if you don’t feel comfortable doing this yourself. You need to be aware of the offshore allowance limits.

@Stanleyb. I agree with Advisor1’s comment & want to add…one such local company offering US-traded ETF’s (e.g. iShares from BlackRock, or Vanguard) is the well-known Easy Equities fintech company. It’s an investment option under their “US Account” product.

Easy Equities’ range of choice is somewhat limited (whether ETF’s or direct foreign shares), but costing is competitive. If you do research on other local fintech co’s, you may find similar solutions.

As a young person you’re fortunate: Saffas never had it this easy to invest abroad (Taking you back to the Apartheid years, you either had to dig an undersea tunnel to get funds abroad *lol*, or risk a flight aboard the SAA Helderberg.) Now you press a few buttons & scan your FICA docs in, etc 😉

One comment on JSE being rand hedge, the rand is stronger than where it was 2.5 years ago so you would expect the JSE to be underwater over the last 3 years if your premise was that 65% driven by ZAR weakness.

The poor performance on the JSE is simply a function of weak growth prospects for listed companies and by extension, that of the SA GDP. Without growth in manufacturing (production) which is fueled by demand, the businesses that make up the economy will reflect ever-declining financial performance.

I attended a building trade show at Nasrec last week. I spent a morning there on the second day of the show only to find the show rather weakly attended. The profile of the visitors were, in the main, old Afrikaans oomies. To my dismay and in contrast, the profile of the exhibitors was approx 40% local and 60% Asian. The Asian products were of high quality, responses (in very broken English) were polite and efficient when I enquired about anything and pricing seemed to be keenly competitive, volumes, lead times, shipment, etc, were no problem.

I wondered to myself what impact this might have on our local manufacturing industry… My prediction is that unless we up our competitive game, in less than three years from now SA is running the very real danger of becoming an 80% import dependent economy with double the current unemployment rate. Our manufacturing industry will be decimated and the cost of living will sky-rocket.

All this will bode very badly for future JSE performance. So I’m in agreement with MH. With SA making up a declining 1% of global GDP, 100% offshore investment sounds about right.

100% spot-un Horsetrader! Asian nations are kicking butt in most things we in Africa attempt to do (..their efficiency & politeness serves as an example to many, even western, nations). In Thailand, building contractors, will erect a completed home in a third of the time it takes in SA. Those people work (hard). Respect.

Western style living & consumer goods (we’ve grown accustomed to) will become increasingly costly to uphold in Africa. To remunerate people a certain level because of race, in all spheres of SA society, will cost the country its longterm wealth.

Direct offshore is the ONLY way & 100% if possible (and how soon may Govt consider increasing tax rates on citizens’ investment funds, to help fund state inefficiencies?)

Having lived in Zimbabwe what is happening in SA is a rerun of that horror movie. Ask my Dad who worked for 40 years for that Government and saw the value of his monthly pension go to nothing.
Good idea about the Living Annuity, Magnus.
Now the ANC has a movement a foot to try and tax share gains inside unit trusts! Another reason to move equity investments offshore. I am sure people in Turkey and Venezula wished they had done this.

…we seem to easily forget the lessons learned up north. SA is a Zim in slow-motion, giving us at least time to flee / invest offshore.

I note your point re SARS considering to force asset management/unit trust companies to report all proceeds/withdrawals (taken under 1 year) to be coded as “income gains” (i.e. taxed in full) , instead of the current practice of coding all fund gains/withdrawals as “CGT” (i.e. giving R40K annual exemption) irrespective of time in the market.

I wonder how long Govt will backtrack on Tax-Free Savings (TFSA), as currently one can lock in profits by moving funds around between underlying portfolios within a single TFSA account structure. A bit of tax loophole, but very little capital can go into TFSA (R33K p.a) to have a meaningful loss to the state.

Agree on some of the article and disagree on the remaining part of the article. But I love the storytelling and always read MH because of this.

Top up offshore exposure on (relative) rand strength.

People rent in Vienna because property is horrifically expensive – hot money from Russia and China (and Sandton?). Using public stats a mortgage would be 87% of salary for the average property. So yes, people rent because hot money has chased asset prices beyond absurd. A lot like the money chasing equities.

I am not saying people should not be going offshore (I am 80% offshore), but switching into S&P or Nasdaq at their present levels would likely end in zero return over the next ten years. Financial Advisors are always late to the scene

“For most of the 20th century the JSE was probably one of the best or even the best investment destination for global investors, far outperforming our emerging market peers.”

Call me what you want, but the previous government at least know what they were doing with the economy. The ANC is helplessly corrupt and inept. Facts and figures don’t lie.

But here in SA it’s “passion over reason”.

The previous government was also hopelessly bankrupt at the end, De klerk didn’t wake up one morning and decided democracy sounded better, they simply had no choice, we where on the verge of a financial collapse, similar to what we are now.

Sanctions…

@PJJ wrote “The previous government was also hopelessly bankrupt at the end,”

HAHAHAHAHAHA

Man, that is funny

Yeah right

You cant even begin to COMPARE pre 94 to today

Please please Mr Left Wing…..wake up from your coma

@Realitybites

I assume you are still so blissfully unaware today of what the situation was in the early 90’s, and that’s not your fault, the government wanted you to know as little as possible, the greatest irony here is, the apartheid government was very “left wing”, ever heard of the maize board?

If you are truly a libertarian/conservative (Like I am by the way) then things like price fixing commodities is not something a free marketeer would do…
The apartheid government wasn’t some capitalist free market heaven, it was a awful central planning structure, and if you know anything about the worlds greatest supply side economists like say FA Hayek then you would know central planning always leads to collapse, btw that’s why communism failed, its all based on central planning, so please instead of ranting in all caps “HAHAHAHAHA” do some research, open your web browser and go and educate yourself.

Please bring me the razor blades!!!

Naaa! open the next bottle of Merlot-much nicer.

Thanks for telling us the harsh realities plainly. Most asset managers must be fully aware of these facts but are probably more interested in gathering more assets under management to their funds. Rather just tell us – we’ll invest in your offshore funds too – if the fees are reasonable!

Seems you are preaching to the converted Haystack. Time to sing a different tune as its getting a bit boring now.

If one removes the understandable emotion around these issues, it goes back to pragmatism. Diversification of wealth internationally is a sensible, mature action to take, to long term advantage. Speak with a quality independent advisor and use properly regulated and established offshore providers. There are firms that have been offering these services to growing numbers of satisfied clients for many years…The offshore investment allowances are available to use – take up the opportunity.. and take a longer term and rational view. Our firm manages over £12.4bn of client wealth as a independent asset manager… so a service well understood and utilized by international investors globally.

I really enjoy MH column….mainly because he is a paranoid as I am – and rightly so!
However, not everything can be blamed on the ANC eventhough this demise is partly the price we are paying for apartheid.
We must also remember that the following incidents have also contributed to the JSE and South Africa’s general economic demise….
– The sale of SAB, one of our jewels that gave great returns and the country credibility
– The sale of Anglo American by the Oppenheimers who took their money and ran….followed by the removal of Anglo dividends which queered our financial credibility even futher.
– The collapse of African Bank and the effect this had on local investor confidence
– The ongoing Steinhoff debacle – which has totally destroyed investor confidence in JSE listings

All of this together with racist BEE policies, increased taxation ( because of the above) grand theft, fraud and collusion within the ANC, the global recession ( which the west is still denying exists) have compounded to create a tsunami which seems impossible to escape.

Add to this, the dismal state of SOEs our downgrading, the unemployment rate, the value of the Rand, talk of EWC, drought, land claims, farm murders, highjacking, over population etc etc and it does seem like a nightmare.
BUT
Actually the biggest threat to our survival is the Environment. Take care of this with Environmental Education and the rest will follow. If you have clean air, water and bees, the rest of your problems are small change….
Invest in a real future for the next generations and the rest will follow quite naturally.

Just my opinion.

And a very sensible opinion.

I was thinking about stopping my RA contributions, this article is the staw (or hay as it might be) that broke the camel’s back.

I’m under 55 so I don’t have the option of moving to a living annuity. RA cancelled.

It depends how you look at these things. I initially invested in the MTN BEE deal (first one). Which was great as it had a lock-up period of 1 year. I then opened online trading, used the proceeds from the MTN to invest in more stocks. I can tell you now that my portfolio has given me an annualised return of 22% since then. I have taken losses along the way, but also made some hefty profits. I don’t have a foreign bank account, maybe I’m naive I don’t know. But I don’t have any intentions of living anywwhere else other than South Africa (for obvious reason,simple arithmetic really, I’m a majority here but still struggle, can’t imagine what it feels like to be a minority in a foreign country), so I don’t have foreign liabilities so I don’t see a need for foreign assets (naive I know).

Kumba alone has given me 64% since June 2017, or 82% in total return (including dividends). Maybe I would have made more by investing offshore I don’t know, but as long as I’m beating inflation (by my calculations my own personal inflation is around 14%), I’m happy. I think the fact that I don’t scare easily has helped. And I have also managed to put my emotions aside, and have avoided noise.

Excellent work Nazo; nice that you beat a lot of unit trust funds and the averages.

Someone once told me that the only time assets are cheap is when there is bad news around

Earn locally until cost of expenses rise too much or at $/R conversion rate my income (after tax!) would be below comparable salaries globally – check

Invest all income into offshore assets – check

Earn some yield here on liquid cash for expenses because of a decent real yield – check

Keep passports ready – check

Yup, just like an expat working in a foreign country or a nomad – check.

For clients who went offshore at the beginning of 2016, the USD is still 7.2% down to the ZAR (at end of March 2018 it was -25%, it recovered since then to -7.2%). Living Annuity clients who had 2 years income in a cash or income instrument now have to top up from offshore, locking in under-performance/losses because of “100% offshore”-advice. Such a pity they don’t buy groceries in Dollar or Yen, they buy in ZAR.

100% agree with you.

If you in the upper echelon of South Africans with huge amounts of discretionary capital that you do not income.

But what about the middle of the road South Africa with a NAV and lifestyle where he needs every single sent available here in South Africa to survive.

He has no VISA or family to visit abroad and he is stuck here in South Africa.

Surely very few are in the fortunate position to 100% offshore all there investments.

These articles really use a big paint brush to paint South Africans with where they are actually the minority, for most people 100% offshoring your funds requiring income in South Africa is risk to say the least.

I like many of the commentators on this article faced a dilemma in November 2017 in terms of being indecisive regarding going offshore…..

– Was ZAR going to devalue even further?
– Were US equity markets over valued?

I lept and took everything offshore into US ETF’s……just before ZAR strengthened significantly, I left @ R14.21

@ the time I thought..holy sh!t what had I done with mine and family’s investments and future?

My situation today?

– Since December 2017 have a 9% return across my ETF’s
– ZAR today is @ R14.40…..wait R14.50, no wait R14.20……you get the idea

Now I track my returns in USD and when I want an extra reassurance I multiply it by the current ZAR / USD rate and smile

Even now in the process of selling my property to offshore that investment as well to go and rent.

It is difficult SuperNova then, for me, add that if you invest relatively small amounts say monthly, you get smacked on the rates and charges; at least by FNB (4.2% last I transferred; they laughed at me when I said their rates were high). Std is marginally better at 2.4% and Nedbank a swinging 5.5%. All different terms and conditions (and costs) of course.

What is the solution?

Hi there, If they are small amounts you are taking off shore and you want an alternative, this is what I would do – my tuppence worth.

Invest into an offshore ETF/ETFs on Easy Equities, charges are small. Build up a reasonable investment, sell the ETFs – bear in mind CGT as you go along (hopefully there would be a profit ….. ) Take that lumpsum amount offshore and invest it. It would make it more cost effective when you pay the exorbitant forex costs of the bank which I am constantly amazed they get away with. There would be a cost of course… spread cost. It would be interesting to know if this is a good idea because the fees on ETFs in SA are higher than offshore, and etc. etc. and for all I know total costs could be six-of-one, half-a-dozen of the other.

I wonder if others think this is a reasonable idea?

FNB Securities will do a FX transaction to their GTP platform where you can buy all of the ETF’s directly offshore, they, will give you a rate close to spot and then charge .5% commission….yes will only work if you are taking large numbers offshore and not a monthly recurring investment.

Agree with @CSG on how to approach it in terms of building a more sizeable amount locally before taking it offshore – @ least @ EasyEqutiies you get access to a couple of the same iShare ETF’s available offshore

Love Trump. Watch the R and JSE tank after todays’ news.

Nope. South Africa will then just fall further.

Entertaining as always Magnus but look at Edson’s comment. Seriously, is that a satisfactory outcome?
I have to say I find this article irresponsible.

Diversification offshore is sensible and accessible. But there is no need to continue to hammer pension funds and RAs just because they are limited by Reg 28 and in so doing make sensible investors and company employees doubt what they are doing.

Does Brenthurst Wealth no longer manage any RAs? Does Brenthurst urge all 55 yr olds to immediately cash in and go into compulsory annuity income all in the name of the ‘ maximum offshore’ mantra? I think not.

OK, let’s sum up Magnus Heytsek article:

1…Don’t buy a house.
2…Don’t buy a car.
3…Send all your money to another country.
4…Try find a wife/husband in Vienna.
5…Invest all your wealth in a Global macro industrial revolution counterpoint equity feeder fund, if you confused contact Sam Houlie.
6…Try and increase your kids electronic devices by increasing their investment returns.
7…If you very old, it is the case of shutting the barn door when the horse has already bolted.

The age old advice is stick to your original game plan even in times of turbulence.

Old Man Rivers comments are a tonic! If we can’t laugh at our situation we might as well slit our ankles and call it a day! South African investors must be the most resilient on the planet!

Sadly, Magnus Heystek is absolutely right.
I have been achieving annual rand returns of over 17% pa for the last 5 years. Why? Because I was heavily invested overseas to start with and have been 100% invested overseas for the past 2 1/2 years, as we advised those of you that follow us. In rand terms my living annuity (LA) is up 18.6% 2018 YTD, versus -2.7% for the JSE Top 40. It is 100% invested in SA Global Funds. Pleasing as the performance has been it is still underperforming our own portfolios ….because the LA has to be invested in SA unit trusts. For 2018, so far, our own 14 portfolios (about 240 shares, 16 countries) are on average up 21.5% in rands.

See: .imsainvestments.com for info on 10 of our portfolios.

My view? Follow Magnus’ recommendations while you still can, before things get worse and stringent exchange control regulations are (possibly) reintroduced.

End of comments.

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