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[TOP STORY] How Fomo can drive investors to take everything offshore

South Africans have a hard time backing ourselves, so it’s often a surprise when we see our market has out-performed international markets: Clive Eggers, GTC.

SIMON BROWN: I’m chatting now with Clive Eggers, head of investments at GTC. Clive, I appreciate the early morning. A great piece came out from you last week, quoting you fairly extensively – titled ‘Why politics is poison in a portfolio‘. You back it up with the data, going back some two years. I’d actually forgotten about this when the Reserve Bank and Reserve Bank commentary led many to think incorrectly. We learned eventually, that there was going to be no limit to offshore in Regulation 28 funds, and everyone was suddenly keen and rushed to the exits, to take all the money offshore and exit South Africa.

The truth is, we were letting emotions really get in the way around sort of SA’s failed state, rather than actually looking at proper hard data.

CLIVE EGGERS: Morning, Simon. Thank you for having me on the show. Yes, absolutely. Once again on the back of that piece of information that hit the news media, emotions dominated investor sentiment, and there was a lot of call for investors to take everything offshore from certain pundits in the market. At the time we were very concerned with that narrative and with the potential impact on investors, because as the article shows, and as we know from history, basing investment decisions on that kind of emotionally-based investment decision almost inevitably leads to wrong decision-making, with seriously detrimental consequences over the longer term.

SIMON BROWN: Yes. And you make the point that folks who had done that at that point are actually poorer for it.

The other piece of data that you [pulled] out – which always fascinates me, but it’s hard data and it’s real in rand terms – [is that] local outperforms offshore, and we need to stress [that]. Often I think we look at a six-month period, or maybe even a couple of years – and I’m thinking particularly of the Nasdaq and the couple of years leading up to the pandemic, and then sort of post-pandemic – in the short term sometimes not, but over the long term actually our market does okay.

CLIVE EGGERS: Absolutely. I don’t know what it is about our South Africans, but we have a hard time backing ourselves, and so it’s often a surprise when we see that our market has out-performed international markets. Indeed, if you think about the currency versus the dollar, it often catches us by surprise when it strengthens. Statistics can be slightly misleading, and obviously even a 20-year data point is interesting. But if you think back to what was happening 20 years ago, it was actually a similar type of environment in one way, and that was [that] the rand had blown out based on factors that weren’t entirely about fundamentals.

SIMON BROWN: Yeah, I remember that. That was December, 2001. The rand hit, I think, R13.61[/dollar]. It was completely insane.

The other point, the last question, is you say Regulation 28 has been gazetted from, I think January 3; you can now do 45% offshore. But you say that your modelling actually suggests 30% to 40% is therefore actually the ideal number. Therefore the 45% becomes moot.

CLIVE EGGERS: Yes, I think we welcome the change in legislation on some level. In the past a lot of accusations have been levelled at retirement fund restrictions that have been too restrictive for South African investors. I think what we are saying now at 45% there would be very few reasons to actually ever take your portfolio up to that level based on our research.

So in effect exchange control is almost a non-issue for retirement-fund investors in South Africa, which is fantastic news.

SIMON BROWN: I take the point. If it becomes an a non-issue, that is fantastic news. Then we can invest as we want.

We’ll leave it there. Clive Eggers, head of investments at GTC, I appreciate the early morning time.

Listen to the full MoneywebNOW podcast every weekday morning here.

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