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SA investors in deep denial, should invest 80% offshore 

A house and pension are the only assets that should be kept in SA, the rest should be invested in hard currency assets that will protect investor’s buying power.

South Africans are daydreaming their way to a poorer future by keeping too great a portion of their investments in South Africa despite massive underperformance of JSE indices, falling real house prices and a future which looks equally bleak for those trying to grow or even just preserve their wealth. 

It really is time for South Africans to invest with heads, not their hearts.  

We are advising our clients to invest as much of their money as they can elsewhere in the world. We do not see a single reason why people should keep any discretionary investable funds in the country. 

People should keep their house and their pension as their only assets here if they live in SA. But the rest should be invested in hard currency assets that will protect their buying power which has already been deeply eroded. 

South Africa is now in its longest downward business cycle since the end of World War 2 and the performance of its assets continue to reflect this unfortunate reality. The rand has lost a third of its value against the US dollar in the past five years and remains under pressure. Investors in South African equities have lagged developed markets while house prices have increased at less than half the rate of inflation for several years. 

The S&P 500 for example has delivered a total return of nearly 100% in the past five years, the NASDAQ 147% and even the 10 year Treasury bond a return of 12%. The total return in rands for the SA general equity market over the same period is just nudging 30% versus a 131% total return of the MSCI World Index, also in rands. But the SA general equity market return rebased to US dollars is down 13%. Many popular equity funds are also showing negative dollar returns over five years. 

We have experienced a sharp uptick in the numbers of clients who are now very worried about the future of South Africa and want to protect their wealth for their families. Our clients are typically higher net worth individuals who have made money from their own businesses or have risen to c-suite level in the corporate world. 

It is worrying that despite the fact that we are already in a recession, South Africa is marching on with plans to expropriate land without compensation and carrying on with an economic and industrial policy which will only make things worse for the country. We are potentially facing further rating downgrades, a bailout and sustained high unemployment. 

But many South Africans are in a ‘daydreaming denial’ instead of taking hard action. 

Much of the advice we see out there does not reflect the reality of South Africa today. For instance, it is a long held belief that local investors should hold about 30% of their assets offshore. Some braver souls have advocated for that to be upped to 50%. But being completely independent, we believe it should be 80%, perhaps more if practical. We don’t think people should just close their eyes and keep investing in the local market as they have always done. 

We are banging the table on this one and saying get your money out. 

We are advising people to put money in the US despite many predictions that the market there have run so hard a steep correction is imminent. 

The US is the most dynamic, innovative economy in the world and represents about 41% of the world’s overall stock market capitalisation. And despite current volatility, for the longer-term investor we think being exposed to many of the world’s best companies is a far better play that investing in the JSE. The JSE does of course have many companies with offshore earnings but it is still an investment in South Africa; the money is still in the country. 

We also favour property investment in select cities in Europe such as Barcelona and Berlin which have the potential for capital appreciation and attractive yields of between 6 and 8% from rental income. 

South Africans should of course hold sufficient cash in South Africa to meet expenses and liabilities and also manage short term liquidity requirements.   

Ian Edwards, Africa regional manager of Austen Morris Associates,

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I agree 100 % . I would think that one should value your SA assets , which typically would be your home , business and maybe other investment properties ,and local shares or unit trust investments . Then add up your off shore assets or global unit trust investments . We live in Africa , a third world continent , and with our government track record SA will slowly ,over time , slide to be just another African third world country .
With this scenario in mind , at least 50% of your total assets , should not be invested in Africa . Very few people i know have , or objectively try, to reach such a level of off shore exposure . But it is time to accept that our African growth rates are simply not going to keep apace with the USA or other developed markets .

Good advice: most people forget to include their property which is a bet on SA incorp. If they have a business, that’s also a bet on SA economy.

Rest of assets should be outside SA and not in rands.

Austen Morris is a financial services company. The author is a financial planner and no doubt gets paid on a commission basis. As usual when you read these articles ask yourself what is the agenda of the author. This does not mean the advice invalid, however it will be articulated to suit his business objectives.

Of course. That is Moneyweb for all of us….have accepted it by now 😉

Being that Fin Services companies (and their advisors) are writing interesting articles, to gain marketing exposure. (and likely paying for advertising?).

I read it with that it mind…

Nothing like a article trying to convince you to throw your money into the US FED created casino.

My Sanlam iTrade with a million portfolio is up 12% since the competition started, that was 3 September.

Since that time:
NASDAQ is down around -6.5%
S&P 500 is down around -4%
Dow Jones is down around -2.5%

And if my gut is right my 12% return is going to go up significantly towards the end of the competition, but who knows…

you seem to be comparing your trading with indices overseas. I’m pretty sure our index was also down a lot over that period. You should obviously compare our index movement with overseas index movement, and you trading movement with what you could make overseas trading there.

Well I am actually short on the DOW Jones, and I went long on Anglo Gold and Goldfields.

And I don’t have to tell you what those 2 did this week…

You made 12% with monopoly money. Congratulations! Please inform us of your real returns one day.

Trust me, if I had more money to throw towards shorting US shares I would!

easier said than done..do a graph of the offshore etf’s compared to the usdzar…closely correlated…where is the outperformance….and dont forget the fees…might as well then buy dollars and euros on your local account…cheaper

Just as Trump goes to war with the Fed and markets slide.

You think SA is a safe bet? Emerging market. corruption, deficit…expropriation…unemployment…service delivery…I know where I would rather be.

This is the cycle that’s been repeating for years now. People keep their money invested in SA for too long, then panic amidst a barrage of bad news and pessimism, and stampede for the exits. SA markets recover, rand strengthens, then they’re underwater and upset. Repeat.

Geopolitical safety, vast mineral reserves, political change in the air, resilient institutions, strong constitution… that’s why it’s a bad idea to allow the news cycle to dominate your investment decisions.

The time to diversify offshore was the first half of the decade, right after the Global Financial Crisis, and when SA was bathing in the adulation of the world because of the SWC.

GOLD !!!!!!!!!!!!

GOLD = TULIPS

Comparing gold to tulips might be the dumbest thing I have read on the internet today, and that’s including the r/btc reddit

Do you pay for referrals? You can speak to this guy – Floyd Shivambu – he recently robbed a bank with the help of his brother. A while ago he was a stern believer in socialism, but after this EFF-style BEE project, he became a capitalist in no time. Once empowered- always empowered they say.

SA financial advisors insist clients should switch to the US after a 9 year bull run : the surest sign that the S&P will drop 500 and the rand will strengthen by R3 on the dollar

I am not saying people should not be mostly offshore, just that people should NOT imagine that the 16% annual returns of the past 9 years are going to carry on!

“Cyclicals”

Johan you have in past comments echoed this, so it should still be, shouldn’t it? Its just that the cyclical of the JSE is not as pronounced anymore

Personally I would rather look for value in the local market (where stocks are trading around 52 week lows) than in the S&P 500 bubble.

Learn to be fearful when others are greedy,and greedy when others are fearful.

My 2 funds are flexible funds from Old Mutual and Coronation (meaning the fund manager has discretion on asset allocation). The fact that the majority of the assets are offshore for both of these are quite telling. What they are saying is given no constraints a heavy offshore weighting is the way to go. I’m pretty sure most fund managers would go this way if they didn’t have constraints

I have to disagree with this article. One should aim to have 99% of your wealth offshore, not 80%.

The upside of investing in the JSE and in ZAR is extremely limited. “But it’s cheap” they say.

Correct, for many many good reasons.

Think with your head and ask why you would invest more than 1% of your wealth in market that represents less than 1% of the investment market.

It’s not about politics, economics or whether you think SA is likely to succeed or not. It’s strictly business, common sense and old fashioned diversification.

Owl:

The JSE is actually not that cheap. Average PE is now close to 20 (I think longterm average about 15 or 16?) So say forward PE average about 17. That is not far off US markets but the difference is their E has been growing very well… local investors had a nice comfy time with property craziness and Naspers impact – two years ago JSE average PE trailing was nearly 23. now local investors feel sad about the last year performance :/ Hangover after the hangout

Selling a chunk to cash, here and/or overseas may sound paranoid but at least you can’t lose value in cash. And then you are armed & ready for the post crash.

Above is not investment advice!!!!!

Soothsayers of the market. No one knows what the market will do tomorrow. Just diversify across assets and markeys and stop listening to prophets.

Valid point, but then one should still only invest about 2% of your assets in SA – that is SA’s share in the MSCI World Index

Offshore where? The US has been in the longest bull market in their history. Warren Buffet’s Berkshire Hathaway is sitting on their largest cash stockpile in history. The fed is increasing interest rates, so the money printing to prop up asset prices has stopped. There’s no place to hide.

Using your head instead of your heart is indeed good advice and investing for retirement is a long term game, switching the bulk of your funds from SA to overseas right now makes little sense, you have taken a lot of pain on the JSE and it’s unlikely to remain forever and should revert to mean over the long term.

Having the bulk of your assets offshore could lead to a serious mismatch over the long term.

In any case, my approach has been and will continue to be, a well diversified portfolio of assets.

While I agree SA is not great for investment the article writer is being dumb. The US and their propped up economy are on the precipice of a huge slide.. the wobbly 4-6% stock loss at the moment won’t compare to the drop of +/- 40-60% in the next 12 months. If you buying into the US market you need to be very aware that if you get it wrong, or stay in too long you will lose.

Simply put, they should have taken the hit in 2008 instead of propping it up to a huge bubble which will have global impact and likely take them into a serve recession given trumponomics. Gonna be fun to see if they are silly enough to start a war with Iran to keep the money flowing whenglobally they won’t get support except from Israel.

I guess we will see what happen eh? Will the US risk a dollar default to save their economy again?

for me it should be between 95%-99% offshore. SA 1% or less of the world, so anything bigger you are overexposed.

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