Why the JSE is walking backwards compared with offshore markets

Convert its returns into US dollars and it looks miserable.
In the last decade the S&P 500 shot up nearly three-fold, while the JSE Top 40 (in US dollars) struggled to gain just 20%. Image: Moneyweb

The JSE Top 40 index looks reasonable when measured in steadily-depreciating rands, but measured in US dollars it looks miserable.

The following chart from Morningstar compares the JSE’s Top 40 index in US dollars with the S&P 500.

The S&P 500 shot up nearly three-fold over the last 10 years, while the JSE Top 40 (in US dollars) struggled to gain just 20%. And that’s after accounting for the massive buoyancy of tech-heavy Naspers, which accounts for nearly a quarter of the Top 40 index weighting.

After crashing at the start of the Covid lockdown, the S&P 500 index has now surpassed its pre-lockdown level.

JSE Top 40 versus S&P 500 in US dollars

Source: Morningstar

The S&P 500 has been pulled up by some astonishing gains in the large tech stocks that dominate the index. Apple has a weighting of about 6.5% in the S&P 500, Microsoft 5.6% and Amazon 4.7%.

Microsoft is up nearly 60% since the start of the Covid crash in March, Amazon is up 90%, and Apple is up more than 100%.

“These extraordinary gains have been denied South Africans pinning their hopes on a JSE with a tiny pool of 400-odd stocks, accounting for less than 2% of the world market,” says Pierre Cloete, CEO of specialist offshore advisor International Wealth & Prosperity (IWP).

“I’ve been advocating an aggressive offshore investment approach using low-cost passive index funds for the best part of a decade, for the simple reason that the JSE has been going nowhere over that period of time when you measure it in a currency that really counts – like the US dollar.”

Many South Africans have demurred about taking a more aggressive offshore position, believing the country would eventually come right.

Cloete says it could be a long wait for those expecting a sustained economic recovery.

Pockets of opportunity in SA

Adriaan Pask, chief investment officer at PSG Wealth, argues that there are pockets of opportunity in SA not reflected in the Top 40 index.

“Our domestic bonds offer some of the best value around, and many South Africans might say that offshore equity markets are expensive. I’d say it’s hard to argue with that.

“There are many bombed-out businesses suffering from the lockdowns that will survive and recover, and there will be some great opportunities in the next couple of years.”

The World Bank forecasts an economic contraction of more than 7% this year as a result of the pandemic, while others expect it could even contract 10%.

Michael Power, global investment strategist at Ninety One, told Moneyweb last week that about 70% of sovereign debt around the world currently has a negative real yield. “The 60/40 split between equities and bonds is being jettisoned because it is simply not yielding enough,” said Power.

Those holding sovereign bonds with negative yields are harming their overall portfolio performance. One option is to hold cash in a strengthening currency, such as the Singapore dollar, or Asian real estate and bonds. Gold, too, offers protection against negative yield bonds and future uncertainty.

‘Proven recipe’

Cloete says taking an aggressive offshore position in equities (such as a low-cost S&P 500 tracker fund) has been proven to be a long-term recipe for building and accumulating wealth. He cautions that investors need to pay attention to fees, since these can dampen returns over time.

Read: Top-performing US equity funds available in SA

“Leaving your savings in SA exposes you to all sorts of risks: that the rand will remain relatively strong (it will not); that the JSE will rebound on the back of a strong economic recovery (there are too many structural problems for this to be anything but a flash in the pan); that the fiscal cliff facing the country will be masterfully navigated by the Department of Finance (doubtful). And that the thieves who stole the state capture jewels will be sent to jail (also doubtful),” says Cloete.

JSE Top 40 index (in rands)

Source: ShareMagic



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Not a real surprise. The JSE just mirrors the hopeless position the ANC government has maneuvered the country into.

Unfortunately that is the ANC policy. When you force BBBEE onto once thriving companies or new/ innovative companies, this is what you get.
Unfortunately, since ANC does not have vision(can’t see the big picture), it will not change. Instead of starting something of their own, they can only interfere….

In other words, the world’s pie is not getting bigger. The slice for South Africa is only getting smaller and being eater up by other countries

Investing offshore is not an emotional decision – nor a reflection of a particular view on South Africa.

The aggregate value of all companies on the JSE is less than 1% of the aggregate value of all listed companies globally.

So for the high-growth investor with 100% of the portfolio invested in equities – even allowing for a home bias factor – it would not make sense to have more than 20% allocated to SA equities. 80% invested offshore is not ‘aggressive’ – its just basic diversification.

Be very clear as well that almost all dual-listed JSE stocks are NOT global equities. So be careful when an adviser who charges asset-based fees tries to hold up the funds under his or her management by suggesting that you can get global exposure by investing in dual listed SA stocks.

Rather than placing a bet only on the US (by investing only in the S&P500), use a Vanguard or Black Rock diversified index fund that invests in all equity markets proportionately. These are available offshore for between 0.15% and 0.30% per annum.

Ahem…as I was trying to say for many years.

…and the fact that the JSE (and its listed companies) operates in an adverse environment, without an attractive 15% flat tax on Individuals & Companies, with ZERO wealth taxes such as CGT and Estate Duty (like MAU.), does not help it.

And that is NOT THE ONLY adverse environment SA companies operate in. Hamstrung by red tape, lack of law and order, …

SA is the dying buffalo, about to rot in the veld, and already being devoured by small black ants.

Did 10X ever take you up on that “wager”, after they indirectly bashed you for fearmongering?

Please give feedback on the red Ferrari investment.

Hi Mr Heystek, is there perhaps a plan in motion from the economic fraternity in SA to convince the government that REG 28 can perhaps include a larger chunk of investments in overseas companies?
Thus (statistically) enriching the average South African. (Based on data from the last couple of years).
Obviously the government wants money in SA, is there perhaps a compromise, or is the communication effort seen as a waste of time?

I understand the frustration, I could only hope that a company or body can try and worm their plans with someone.

Would have been walking backwards a lot faster if there was no Regulation 28.

For the majority the JSE is a mystery. Till the price of cabbages and pilchards hits the roof or some food shortage.manifests, the stock market is irrelevant.

Well commented…so many should know about saving through investing but don’t really think or care about the thought of doing it…wisely and many think Liberty and OM have their backs…which they don’t

The double whammy is that many dont learn about financial management/ planning from their families or have little in terms of savings disposable income to venture into equity markets etc. With the wealth disparity so large in SA, many are battling to feed themselves and get healtcare – not many understand the 3 word ticker signs, red, green or arrows. Its about the here and the now. For the 1%, best to have some risk management in your plan and go off shore.

(Accelerating of) decline proudly brought to you by the Zuma-administration, circa Nenegate.

Emerging Markets underperform during periods of dollar strength. This plays out regardless of the movements of the rand.

The dollar strengthened by more than 20% against the euro over the last decade. A stronger dollar causes a type of deleveraging or liquidity squeeze in Emerging Markets as liquidity flows into the dollar. A strengthening dollar is deflationary because all commodities are priced in dollars. A strong dollar hurts emerging markets more than it hurts US businesses and it is quite common to see countries in Emerging Markets default during times of prolonged dollar strength. Many undeveloped countries are on the brink of a sovereign default at the moment.

South Africa has its own self-inflicted problems that are mostly due to stupid and shortsighted socialist strategies. The stupidity of the ANC has exacerbated the outflow of capital and caused the JSE to underperform Emerging Markets. South Africa will not be able to escape a sovereign default if the dollar continues to strengthen against the Dollar Index.

The actions of the Federal Reserve in the USA put an end to the strengthening of the dollar, and the dollar is moving weaker against a basket of currencies. This weaker dollar is by design. It is part of the international “currency war” to improve the ability of US companies to compete in the world market. The loose monetary policy in the US will drive the dollar weaker for the foreseeable future.

A weakening dollar will help to support the profit margins of JSE-listed companies. During times of dollar strength, the investors in Emerging Markets invest in US companies. During times of dollar weakness, the Americans flock to Emerging Markets.

We may have a bigger problem soon. The unravelling of the dollar as reserve and a new Bretton Woods if IMF rumblings are correct. And a lot of pain to most currencies.

Thank you for that interesting comment. A fiat currency is money “by decree”. This implies that fiat currencies have value because the state has a monopoly in violence. This brings us to the point – The country with the strongest army will also enjoy the privilege of printing the reserve currency of the world. The USA won’t stand back to let the dollar lose its position of privilege. The dollar is backed by the US military. Sadam Hussein learned this lesson the hard way.

Agree regards risk to USD keeping its reserve currency status, but think this will take several years to develop, as there are no realistic alternatives at present.
For those interested, this topic is covered in depth in Macro Voices and Grant Williams ‘The End Game’ podcast series – the Breaker app carries these and many good financial podcasts.

From the global investors perspective Emerging Markets would comprise around 5% of the global investors portfolio.

From my perspective, emerging markets comprise Asian countries, and entirely exclude Russia, Turkey, South Africa, Brazil etc.

Have a look at the MSCI Asia ex Japan index and compare that performance with MSCI Emerging Markets Indices.

Nothing suggests that the next 10 years will be dissimilar to that of the last.

If you overlay the FTSE 100 on that Top40 vs S&P 500 graph, its basically the same story (ok, maybe 15% better over 10 years).

Point being, whilst I am at the front of the queue investing offshore, our situation of lackluster market returns is not unique to the JSE. We do however have the added benefit of little to no recovery hopes.

I agree. The JSE and the FTSE 100 are joined at the hip.

I have been investing in the S&P500 and related ETF’s for 10 years now.
My initial, quite large, investments have more than doubled in value.
My JSE listed stocks (those I have not yet sold off) have lost value of more than 40%.
Anyone banking on dollar weakness to boost the JSE is either deluded or does not fully understand economics and the dire position of a failed state (RSA)
Listen to Magnus – he has been proven correct over and over again.

Exactly why South African residents should be diversifying wealth offshore through a independent, regulated and established asset manager…

Maybe the JSE is running backwards in preparation for an Usain Bolt sprint? Like the preparation for a hot lap in Formula 1 were the drivers back off a bit before flooring it.

Or we are just screwed.

No disagreement with “Insight’s” comments: own good businesses right around the world (and avoid the forecasters). You can do so cheaply with a few good ETFs. Sygnia Vanguard S&P 500 costs you 0.15% per year and Sygnia have nice suite of ETFS. Or lese move money offshore and use a suite of Vanguard ETFs.

The big issue with this article is the retrospective cherry picking of data/confirmation bias re US market as the chief comparitor with Top 40. Why is the UK or Europe ignored?

If 10 years ago you took your money and put in different markets or ETFs, your returns would be (from FT website)
1. Satrix Top 40: 80%
2. Satrix Indi: 176%
3. Sygnia US 500%
4. Sygnia Europe 117%
4. Sygnia UK 88%
5. Sygnia Japan 244%
6. Sygnia World 351%
And if you picked the right shares? Yes, this is retrospective cherry picking too!
7. Naspers 776%
8. Capitec 811%

It is frankly misleading to just compare the past 10y performance of the JSE with the best performing market in the world.

Perspective, thank you

Satrix Top 40 is still by far the worst performer!

I almost forget how 10X tried their best to convince potential investors that the JSE is all you need for a great retirement. The investment returns since tell the whole story. I now hear they want to offer offshore funds as well.
I also hear outflows are increasing…. our

Glad you’ve returned

End of comments.



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