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The true financial cost of Hurricane Jacob

An honest assessment.

Stone last.

Over 1 month, six months, one year, three years and even five years. In rand as well as US dollars. Against the developed world and now also against the emerging market world. Take your pick; it doesn’t matter.

These are the current facts of the returns of the Johannesburg Stock Exchange relative to the major investment groupings we would like to compare ourselves to.

Let me say it again: stone last!

Have a look at the below table and make up your own mind whether this is clickbait or financial pornography. These returns are in rands but the returns in US dollars gives exactly the same outcome. Stone last over each and every investment period.

Source: Financial Express

This article is not meant to titillate or excite you. It’s meant to provide you with facts concerning your money and your future money. And please don’t say you haven’t been warned.

And if it means another barrage of  “if-you-don’t-like-it-you-can-bugger-off” emails, then so be it. The facts speak for themselves.

What we are witnessing and experiencing is the true financial costs of Hurricane Jacob and his cronies within the ANC on each and every South African whose wealth is tied up in investments on the JSE. The rich, while also being affected, have at least the ability to externalise some of their assets by means of offshore investments. It’s the middle class and the poor particularly who don’t have this luxury and who have most of their personal wealth tied up in retirement funds linked to the JSE, with only an allowance to externalise 25% of their assets.

We are witnessing a slow and relentless collapse of relative investment performance, much along the lines of the collapse of the standard of our national rugby team. Like the Springboks, whitewashed 57-0 by the all-conquering All Blacks in Albany more than a week ago, our relative (and real) investment returns are being demolished by a decade of economic mismanagement, a collapse in law and order and wholesale looting of the state coffers. 

And what adds to this tragedy, is that most investors are oblivious to what is being done to them and their future wealth. They simply don’t know or understand how dire the situation is. Certain parts of the media, I find, are very reluctant to publish articles along these lines, instead preferring to publish sunshine articles about the “JSE at record levels” and “now is the time buy” as the paid-for articles on many websites keep on exhorting the masses.

Almost every day I get an email from my bank urging me to buy shares on the JSE using their investment platform. The latest one is that all I need to do is pay some money across and the shares will be bought and sold by a team of experts.

Only problem is: the JSE is the world’s worst-performing major stock exchange at the moment. Oops.

It’s like the Ford Motor Co advertising a special deal on its Kuga model. Did they mention that they kind of catch fire for no rhyme or reason?

Ah, they would say: “But wasn’t the JSE the best-performing stock exchange over the last 100 years?”*. It’s like saying the Springboks are the best rugby team in the world due to the fact that they won the Rugby World Cup in 1995 and 2007. Egypt has also now replaced SA as the investment country of choice in Africa, according to RMB, another signpost of our relative decline in the eyes if the world.

Law and order

Several years ago I attended a lecture on investments by the late Dr Simon Marais, in life chairman of Allan Gray Investment Managers and one of the most successful investment fund managers ever in South Africa.

When asked what he looks for (globally) as the most important prerequisite for long-term investment success: he said: “law and order”.

Not return on equity, price-to-book, cash flow or any other financial ratio commonly used by fund managers, but law and order, plain and simple. To which I can add good governance, either state or corporate.

You cannot expect the private sector, especially companies listed on the JSE, to flourish and produce inflation-beating earnings and dividends in such an environment, as some people, advisors and columnists seem to think. Listed companies, more so than private companies, operate in an increasingly toxic business environment. And a reading of a swathe of company annual reports and financial statements underlines just how severe the situation is.

Business confidence is now back to levels last seen in 1985 when former president PW Botha was busy ruining the country.

The appointment of Jacob Zuma as president of the ANC and country ten years ago has been nothing short of a disaster. A human wrecking ball, as columnist Max du Preez aptly described him. No longer is there any doubt about which one of the roads we as a country are on. At first, during the Mandela period, there was a real and enduring chance that SA could be on the High Road as foreseen by scenario planner Clem Sunter.

Instead, we are firmly on the Low Road which is characterised by rising unemployment, theft and looting of state coffers, rising crime and social unrest and a widespread collapse of infrastructure (water, sanitation, roads and electricity) in major swathes of our country. I often travel to the smaller cities and larger dorpies in our countryside, meeting with business people and farmers, and hear first-hand the conditions under which they operate their businesses and enterprises.

Our economic growth rate over this period of time (2007-2017) has been almost 2 percentage points below the longer-term average which, apart from the obvious loss in potential employment for a country with a rising population, has also led to a steady deterioration in the key national financial metrics, such as debt to GDP, interest cost as well as tax buoyancy.

The result of ten years of economic sabotage and disastrous economic policies are now playing out in front of our eyes on TV and in the media. The collapse in revenue collection — a budget shortfall of between R40-R50 billion for the current fiscal year — are but superficial signs of the financial rot that has set in.

The next target for state capture in its most brutal format is the trillions of rands being managed by the Public Investment Corporation on behalf of its clients, mostly the Government Pension Fund (GEPF). And thereafter, I’m sure, will be the private sector pension funds.

As Jesse James, infamous bank robber in the US wild west, once said when asked why he robs banks: “Because that’s where the money is”.

Run out of easy money

As a country we have now run out of the easy money. The easy money was the yearly increase in tax collections, which always seemed to match or even exceed budget figures. Those days are gone. The global commodity cycle — which generated super-duper profits for our mines from 2002 to 2008 — is now over, perhaps for a very long time.

For the past number of years Treasury, alongside our private sector economists, have been over-optimistic as far as economic growth rates were concerned.

Each year initial forecasts are toned down or trimmed as the year unfolds. This year’s forecast of 1.3% growth in February was almost immediately slashed in half by the IMF, World Bank, Goldman Sachs and almost anyone who digs a little deeper into the numbers. A growth rate of anything between 0% and 0.6% seems to be on the cards for this fiscal year. Whatever it is, it will still mean a sharp decline in the GDP per capita for the country as whole. In other words a country getting poorer.

And have you noticed, dear reader, that I haven’t even mentioned the residential property market? Have you tried selling a house recently?

Would I prefer to remain quiet about these unfolding events? Absolutely! But what would you prefer, dear reader?  A marketing-driven, sanitised version or a brutally honest assessment of the unfolding financial catastrophe caused by Hurricane Zuma?

*A recent study by Credit Suisse found that the JSE was the best-performing stock market over the last 100 years.

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

COMMENTS   47

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It’s good to have you and your honest reporting back !!! Will anyone listen???? I do !

Zuma is only the symptom of the disease I am afraid. The death sentence for South Africa was signed when BEE policies became law. BEE is nothing but legalized plunder. It is only logical that the ANC has a criminal leadership for all crime syndicates have criminals as leaders.

Those (stalwarts) who support the ANC, and claim moral superiority, are simply disillusioned liars. If they did have any sense of morality they would simply vote for the opposition.

The looting started with BEE codes that created two classes of citizens. Those who have a license to plunder, and those who are plundered. Now we inevitable reached the stage where those who plunder far outnumber those who are plundered, and we are running out of loot.

The next stage in this process of legalized plunder is the confiscation (by law) of all pension funds. The criminal state will simply pass a law, forcing all savers to lend to Luthuli House. They will say that buying government bonds is good for you because “it is safe, guaranteed, risk-free investment”. Then follows the next step. They will repay your loan with depreciated currency. They will steal the value of the currency, through hyper-inflation, in their attempts to continue the process of plunder.

The most terrible fact of BEE is that it’s success is totally dependent on white citizens. If everybody in the country were black, there could be no BEE. BEE in effect state that some are superior human beings and others are inferior because they need BEE codes to make then equal to the “superior” (plundered) minority. BEE is the most racists and degrading policy because it labels black people as inferior.

The ONLY way to stop these chain of events is to scrap BEE codes and treat everybody equal before the law.

“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
― Frédéric Bastiat

Ironically, BEE (and all other forms of affirmative action based on race or other discriminatory and distinguishing policies) by its own existence, entrenches the concept that the party being discriminated against is “superior,” or at least is in a superior position, to the intended beneficiary.

It requires the raided party being kept in a position of superiority.

It results in the beneficiary party being kept permanently in a position of subservience.

@ Sensei. RJ Johnson is his book How Long Will SA Survive named BEE as one of the 4 structural problems SA has: “the disconnect between merit and earnings”…where no western economy can survive such a system long-term. BEE is an artificial system that is unsustainable like Apartheid. Sadly the SA economy will shrink along with that, effecting black and white, wealthy and poor, as SA won’t be able to compete globally & various ratings/studies already confirm that.

There is still a big need for social redress, but BEE done the wrong (easy) way from the start.

Sensei ,sensei ,what selective memory if you do some research instead of painting all of SA the colour brown you will discover that,Bee was called Separate development, job reservation was the order of the day,property rights was non existent etc.all supported by the church & a superiority complex Fed by the success of EUROPEAN ancestry ,please.be more cognizant of this countries recent historyn

cannot agree more – whatever the anc touched they effed up totally – the main cancer is the anc

Bravo Magnus, very well put.
My suspicion is that things are going to get a lot stranger from here on forward.

Magnus, we know all of this. We exerience it and read about it every day. You dont have to try and scare us – we are already scared. Apart from investing offshore and getting out of residential property, what tangible corrective solutions do you propose? I see little value in rants such as this without you at least attempting to offer a workable solution or two. How to fix SA 101 – this would make a refreshing difference to your same old, same old.

The fix is easy – ANC out, DA in!

Last time I checked the DA also supports racists policies such as BEE and AA….so what’s the difference between DA and ANC then? The only difference I can see is that the DA hasn’t had the opportunity to be in control of the country and to loot it.

People forget the only way the DA can govern is if the majority of DA supporters are ex-ANC supporters!!! It is basic maths. That ANC mindset will persist in the DA and they will go the same route as the ANC.

The DA is more an ‘ANC-light’ than a true solution. But it’s the best we have for now.

Timmo told it like it is, but horsetrader still wants to know what the solution is. The way I see it, the solution is the following:

1. According to polls, more than 85% of black people do not have issues with white people. They do not hate them and they even trust them. This is the center, the pivot or the anchor of our potential as a country. When people of all races meet in the street there is mutual respect and goodwill. We are at least much better off than Germany in the 1930’s where the minority were killed by the millions under government policy.

2. We need a political party in government that proved it can control corruption at local level. The DA does not have a policy at the moment, but we do at least know where they govern, things are better and property prices rise.

3. If this party without a policy then promise to carry on with BEE and AA to win over the ANC voters, it won’t be the first prize but it is a good compromise. At least it will be much better than what we have at the moment.

4. Then as service delivery is rolled out, and the new DA voters are given opportunities to improve their lives, the DA can begin to inform them about the negative impact of BEE. People need to realize that job opportunities and food on the table for everybody is much more important that BEE for the chosen few.

5. People(black or white) who help others(black or white) find employment or build their entrepreneurial spirit is rewarded with tax benefits.

6. All BEE projects are nationalized for the benefit of the poor students.

7. Politicians may not receive a salary higher than the people who employ him. He should earn less than a policemen, teacher or nurse, for these are the people who pay his salary. Then we will get the right people as politicians.

+horsetrader

MH is talking precisely at you but as you are like the proverbial frog in a pot of every increasing water temperature, it seems precisely as it appears, that you are too complacent to move yourself.

We know the solution: emigrate. But it is so hard. Human beings rarely like change.

How are ever going to grow the economy when every possible working investor is encouraged to move the funds meant to build our economy and create jobs is shipped overseas? I cannot understand why we should be encouraging the export of funds which should be used( we are told politics does not control the JSE) to grow South Africa and help create the jobs so urgently needed. Why would we prefer to ship our money to other countries to grow their economies, making our currency weaker so that we import those same companies products with a weak currency and making this product so expensive that only the ultra wealthy can afford them or they become too expensive? My question to everyone is that Zuma spoke in December 2015 and the currency weakened over night, yet three weeks later and till now the same President is around and yet the currency came back 28%. Is this article meant to frighten us to start moving offshore again so assist the currency weakening so that those advisors who took their clients money offshore early last year are able to recoup the massive losses clients made as a result of this excellent advice? I think that i am not naive but we should rather start asking those who promulgate the export of funds from South Africa to other countries to grow those economies should please not be given free press and rather to ask them why/ how are we going to grow South Africa without the money need here that they have taken elsewhere? If they are not willing to allow us to use their money in JSE listed companies and to allow the economy to grow with the long term assistance of this invested money, then we are surely doomed and then we should close down the JSE and run!

There is no shortage of capital in this world. If a country wants capital it simply has to make itself an attractive investment destination. If it fails to do that it should expect the smart money to move elsewhere.

Magnus – do you see an improvement post-Zuma? (Provided, of course SA gets a non-corrupt President)
if so – how long for SA to get back to normality (unless this is the new normal)

“A non-corrupt President”…a bit of an oxymoron given this is Africa!

That’s unfair comment towards Zuma! I mean, SA never had such a great TRIBAL CHIEF than ever before…

😉

Yes indeed, in the last decade we have seen the country deteriorate and come apart at the seams before our very eyes. But really, what does this mean to the man in the street whose vote determines our future? That is the real problem. Until he or she wakes up and realises that their lives are being made increasingly more difficult by this wrecking ball of a president, we are but passengers on a train that is at risk of coming off the rails at every moment.

Agreed but it is a vicious cycle. We have half the population in poverty, with little access to basic servies required to uplift themselves and roles models of people like union leaders instead of the Musks of this world.

ANC have done a terrible job of trying to achieve this because they think in 4 year windows versus saying ok how do we bring half the population into the economy on a sustainable basis. They had the political capital to do this over the past 20 years but you can’t expect someone who has nothing to all of sudden start thinking long term.

If we can upskill and improve the lives of that 50% then that is the way to long term sustainable growth in the economy with the happy side product being logical voting patterns versus what we have now.

There are no doubt huge obstacles to overcome, but we must remain optimistic for to go the other way is a deep dark hole with no bottom. There is a very large groundswell that is building against corruption. People just need to connect the dots and realise that Zuma has been the problem from the start, but the ANC as a whole is now complicit due to its failure to act against him. In most courts, they would be found guilty by association. Therefore it has become a criminal conspiracy to maintain this status quo of fraud and embezzelement of public funds, using the SOEs as channels to launder money.

I feel sooner or later the penny will drop among some but not all ANC supporters, but at least it is progress. The ANC has failed to protect and uphold the constitution, it has failed to bring jobs and economic growth, it has failed to hold its own leaders accountable and therefore on a very basic level they must be punished by being removed from power and the next in line (ie the opposition) given a chance to show what they can do. If this message can be taken to the man in the township there is hope for this country.

He asks: “But what would you prefer, dear reader?”
I would prefer tangible, actionable investment advice. Not rear view mirror clickbait porn.

Give us your predicted annual returns (in Rand) for the indices on your table for the 5 years ended 27/9/2022. At least that would give the MH fanclub a starting point for positioning their portfolios for the next 5 years based on your views.

FWIW my 5 year prediction for anualised returns 28-9-17 to 27-9-22:
FTSE ALSI 13%
MSCI Asia ex JPN 14%
MSCI World 12%
MSCI Europe 12%
SP500 (TR) 11%
MSCI EM 14%

I think a sensible asset allocation for Saffers right now is: 60% SA 40% offshore, unless they plan on emigrating at some point, then I would recommend 20% SA 80% offshore.

Interesting view ..but then I would prefer MSCI Asia ex Japan/EM..higher return, more diversified and less risk. So on a risk /reward basis its a better deal despite the scrap between dotard and little rocket man!!

Seems reasonable enough. Good response as there are specifics.

Regards

@Bylo. You have your regional allocations all wrong. It should be:

60% Ethereum (ETH)
25% Bitcoin (BTC)
10% Ripple (XRP)
5% Litecoin (LTC)

😉

On a serious note: would prefer Asia (ex Jpn) for bulk of long-term investment bet. The US & Europe albeit stable, have reached the top of their regional geo-political/power/growth path, as a mature market. Most of the future global growth lies in Asia. Based on pure demographics & long term shift in economic (and military) power towards the east.

But Korea – is that not risk.

It seems to me that ANC supporters are either in-corruption or in-poverty. A very sad state of affairs.

Agree with sentiment, but we are not stone last. Indices are composite averages, so we’re below average on every metric, but not stone last. If you have a child writing matric who is below the average of every school, it does not necessarily make him the dumbest kid in the country.

I agree with all of this MH BUT the real problem is not JZ or the ANC- it is the uneducated and stupid voter here in SA. Flawed our democracy may be, but it is a democracy and voters voted for JZ in 2009 and 2014 and recently the ANC largely supported him in the no confidence debate despite his scandalous delivery.

So South Africans must realise they have choices and despite JZs track record from 2009 to 2014 he was duly and legally re-elected. This is not only SAMs view-it is also the view of BCA research one of the best research houses.

Until South Africans realise that their vote is not a thank you for a soft government job, basic income grant or BBBEE rubbish position we will keep on sinking. All what the ANC has done is buy time…we have to go broke and its already starting-fiscal deficit, massive petrol price increase coming and SOEs insolvent or bailed out with dumb voters money!

My View:
I was amused yesterday by the Old Mutual Statement 0f more than 10 % growth over a hundred-year period on offshore investments – what part did the exchange rate play in that?
Zuma will eventually go, Cyril will take over, methinks.
Africa has always been the ‘’poorer cousin’’ anyway…we might be an emerging market leader etc with metals and minerals to export etc…that’s our offer and it has been good enough for decades.
We will return to be the top merging market with a first world financial system again and I still maintain that the USD/ZAR in the meantime will continue to trade in a wide box range of USD/ZAR 12.75 to 13.75
In my trading days most funds etc invested in the 10-year German Bunds – in those days yielding > 10 % – it’s close to zero now’. Yield is King and that is why billions in ‘’stork money’’ continues to fly in-and-out of SA!
Most of the current bad news (Zuma – Junk Status) is well discounted in our market right now!
Will I invest offshore right now? No, I won’t as I believe the exchange rate will reduce your gains due to the appreciation that the ZAR will undergo when we return to ‘’normal’’ in 18 plus months. IF you live in SA – where you will have to spend your money – lots of the gains evaporate due to market conditions that prevail!

I’m not overly interested in the 5 year return on the JSE, yes in the short term is hurts but I’m investing for the next 30 to 40 years.

Eventually, I would expect the ANC,BEE,EE etc to fall away and for SA to get itself in order, again this is a 30 year view vs a 30 month view. This might seem overly optimistic but with all the global political noise at the moment, I don’t don’t see many geographies that promise better long term growth. Yes, Germany, France, China and maybe Aus might provide me with better returns over the next 10 years but over the very long term? Impossible to know and adding currencies to the mix doesn’t exactly make me feel safer.

I would also argue it is easier for us to structurally reform into a free market inclusive economy versus somewhere like the UK where brexit is going to have a deep long term impact.

I am sure lot of investors had the same sentiment in Zimbabwe 20 years ago.

Magnus, contrary to popular belief, residential property will never be dead as an investment option. As long as there are people on this planet, they will require accommodation. Governments will come and go, presidents will come and go, but people still need a place to stay, right ?

The mistake people make with buy to let, is simply to think too small. If you are going to do it, you will have to scale up to at least 15 plus units. Otherwise, don’t bother.

They said the same things about farming. Growing population, land is limited, farming skills are scarce and a growing demand for food. Then we have never had so many bankrupt farmers in South Africa as we have now. Debt levels in agriculture have never been higher and there has never been more land on the market (without buyers) as we have now.

The problem with both agricultural property and residential property is that both are tethered milking cows for the local governments with socialist agendas. The politician who acts on behalf of the voter with his sense of entitlement will bleed the property owner dry.

The bottom line is this – to be a capitalist in a socialist country is a very scary and lonely place to be!

You are correct, however, in practice the higher holding costs of property are simply transferred unto the tenants, who end up paying it via the increase in their rental.

The bottom line is, South Africa has been through wars, economic meltdowns, bad presidents, Apartheid etc. and yet people need a place to stay. Unless the whole population is annihilated by an atomic bomb, they will still require accommodation in future.

I am happy to continue to invest in residential property, not so much as a form of generating capital gains, but rather for income. If it increases in value, it is a bonus !

I must admit I have been a little sceptical of all the SA is doomed articles by Magnus. I am largely invested in JSE shares, which do have a small component of offshore earnings, and which I receive dividends to live off.

Most of these shares are small/midcaps that are cheap by any metric and I am not going to liqidate and buy expensive US equities.

However, that said, I recently read RW Johnson’s book, which helped me understand the level of corruption in SA, which gives Magnus’s articles a lot more credibility to me. Henceforth I plan to reinvest all available dividends or cash into offshore markets as I believe I have underestimated the SA problem.

I do like to receive my income in SA from SA as it is easier and one does not have to convert currencies etc, but I now plan to build some wealth outside SA which does not need to come back here for anything.

@RossZAR. I see you also read RW Johnson’s (mostly depressing, but realistic) book. After I read it, everything that’s been happening the past 2 years (sadly) is now clear to me. The future has become much clearer.

Your comment in the last two paragraphs….I’ve come to the same conclusion regarding offshore investments (one’s focus should not only be regarding returns, but rather against political & sovereignty risk).

@MichaelfromKlerksdorp. RW Johnson’s book was very depressing. I must admit to always trying to see the best in SA because it a great country, but my eyes were opened by this book which I think a lot of thought went into. I have not given up on SA but do have to also start assuming we in for a rough ride, and offshore investments with no link to a SA institution will be part of that.

If you guys enjoyed Johnson’s book, try this one for real insight: The Dictator’s Handbook by Bruce de Mesquita. It gives wonderful insights on the whole game playing out in SA today. One of the best reads of the year for me.

@ Meneer hangpens 😉 Thanks for that….I’ll check out The Dictator’s Handbook (…it’s available on Loot.co.za)

I think the ANC-regime, based on the fact that they’re famous in lacking to implement/follow-through things, they’ll be similarly incapable to follow the rules of a Handbook (considered too academic & will be too much effort).

Instead, the ANC is a “copy & paste” regime: they learn from their esteemed Zim “old comrades” up north, and try the same tactics to keep themselves in power. Easier. They try to copy what has worked for ZANU-PF, in a more softer approach, but yet same revolutionary bed-partners. The Zim word “indigenisation” policy = synonym for the ANC’s “radical economic transformation”.

Greetings from another boepens 😉

Don’t worry, anc, your voters will still vote for you. Congratulations on your success in brainwashing SA into voting for you.

The ANC absolutely depend on SA having a huge poor population – that’s where their votes are coming from. So don’t think the anc has any plan whatsoever to grow the economy.

What changed between now and 23 years ago when everyone predicted the end at that stage, because of Zimbabwe etc.? Is something different this time around? Have we reached the sudden bankruptcy this time around, how do you know that this is now the end for SA, because on a long enough time scale everything goes to zero…

My capital is 50/50 on and offshore, so just wondering why you can say confidently that now is the end? to me it looks like SA is a buying opportunity because everything is discounted and undervalued rel.to other EMs — caveat emptor

Since weather moves in cycles, I dread to think what damage the next “HURRICANE NKOSAZANA” will inflict?

Stone last! This is tragic, devastating and dastardly.

I believe, even though the instant removal of Zuma may not be sufficient on its own to correct the systematic problem of an inadequate economic structure, it’ll go a long,long way towards the beginning of a turnaround in investor confidence, to some extent. It’ll give breathing space for repair to the economy, and for meaningful changes to be authored.

I am ashamed that we can’t get rid of him sooner !

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