SA TOP40 Offshore Exposure Revealed
31 March 2017 | SA Views | Joani van Wyk

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In this article, we determine exactly how much of the JSE TOP40's earnings are generated offshore. Numbers between 50-65% are bandied about, so we will put this to bed with exact detail.

We will then examine the sensitivity of JSE Top40 shares with >75% earnings local and JSE Top40 excluding these shares to movements in the Rand. The results will probably surprise you, but upon some hindsight reflection, make sense.

With all the politics gyrating the Rand lately we look at 4 stock picking trading strategies you can deploy depending on your view of where the Rand is going.

Toward the center of the article we provide a first for financial articles of this nature - a dynamically updating table you can refer to every day to assist you with finding trading candidates when wanting to position for large moves on the Rand.

We decided to look at the split between offshore and local earnings for the companies comprising the Top40 index and the figures can be seen in Table 1 below. Note that clicking on column headings sort them accordingly, and you can filter the list by adding >x, >=x, <x, <=x into the column filter boxes. Just clear these boxes to show everything again.

From this data, it was calculated that 62% of the Top40 index earnings are offshore and the remaining 38% local.

Table 1: Top40 Index Earnings (click headings to sort table)

The Ranking Score is the investability score discussed in this article. Score of 1 is best share to go long if you expect the Rand to weaken or best share to short if you expect the Rand to strengthen. A score of 43 is best share to go long if you expect the Rand to strengthen or best share to short if you expect the Rand to weaken.

Name J200
1 Yr TR
Anglo American 5.04% 21.09% 93.00% 4.68% 26
Anglogold Ashanti 1.09% -32.49% 74.00% 0.81% 3
Aspen Pharmacare Holdings 1.84% -16.69% 78.60% 1.45% 8
Barclays Africa Group Ltd 1.10% 9.63% 22.80% 0.25% 30
BHP Billiton 8.17% 7.92% 100.00% 8.17% 19
BidCorp Ltd 1.64% 14.78% 100.00% 1.64% 2
Bidvest Group 0.97% 46.14% 48.50% 0.47% 36
British American Tobacco PLC 4.34% 6.89% 97.00% 4.21% 13
Compagnie Financiere Richemont AG 9.93% 22.01% 91.20% 9.05% 18
Discovery Ltd 0.77% -13.87% 34.30% 0.27% 32
Firstrand Limited * 2.63% -9.64% 1.00% 0.03% 39
Fortress Income Fund Ltd. (A) * 0.36% -17.53% 42.30% 0.15% 34
Fortress Income Fund Ltd. (B) * 0.46% 6.72% 42.30% 0.20% 24
Gold Fields 0.72% -30.90% 87.00% 0.62% 4
Growthpoint Prop Ltd 1.31% 7.11% 20.90% 0.27% 37
Impala Platinum Hlds 0.57% -27.20% 74.50% 0.43% 14
Intu Properties Plc 0.83% -20.86% 100.00% 0.83% 1
Investec Ltd 0.46% -4.09% 58.20% 0.27% 10
Investec PLC 1.08% -5.04% 58.20% 0.63% 11
Life Healthcare Group Holdings 0.73% 14.48% 7.20% 0.05% 28
Mediclinic International plc 0.82% -24.19% 69.20% 0.57% 5
Mondi Ltd 0.71% 30.23% 93.90% 0.67% 20
Mondi Plc 2.21% 30.43% 93.90% 2.07% 21
Mr Price Group 0.70% 18.53% 7.00% 0.05% 33
MTN Group 4.08% -10.26% 70.50% 2.88% 15
Naspers 18.56% 30.24% 53.70% 9.96% 27
Nedbank Group 0.97% -6.66% 3.40% 0.03% 43
Netcare 0.70% -24.67% 49.80% 0.35% 9
Old Mutual * 2.98% -10.70% 50.00% 1.49% 12
Redefine Properties 1.00% -3.09% 52.10% 0.52% 23
Reinet Investments * 0.80% -3.08% 97.02% 0.78% 6
Remgro 2.04% 17.99% 21.47% 0.44% 22
RMB Holdings 0.73% 11.13% 0.00% 0.00% 40
Sanlam 2.21% 30.69% 15.50% 0.34% 35
Sappi 0.95% 63.66% 76.80% 0.73% 29
Sasol 4.03% -8.27% 52.70% 2.13% 17
Shoprite 1.57% -13.28% 18.80% 0.29% 41
Standard Bank Group 3.23% 9.35% 28.70% 0.93% 38
Steinhoff International Holdings N.V. 3.09% -20.85% 68.00% 2.10% 7
Tiger Brands 1.21% -9.96% 17.00% 0.20% 42
Truworths International 0.71% -3.83% 23.80% 0.17% 25
Vodacom Group 1.44% 25.54% 22.60% 0.32% 31
Woolworths Holdings 1.24% 22.53% 40.80% 0.50% 16
FTSE/JSE Top40 100% 4.17%   62.00%  

Source: Bloomberg

Companies that generate less than 25% of their earnings in foreign markets (Table 1 col 4) were identified and an index containing only these companies ("Local Index") was constructed as well as the Top 40 index excluding those companies ("Top40 ex Local Index"). Figure 1 compares the cumulative return for these three indexes for the period 2013 to present.

Total Return Comparison

Figure 1: Total Return Comparison ***

An interesting finding was the co-movement between the Local Index return and the Rand/Dollar movements. One would expect the local index returns to be positive and the Top40 ex Local Index's return negative when the Rand strengthens and vice versa. To support this, calculations showed a strong positive correlation between the Local Index return and foreign exchange movements (Table 3) with Local Index return-USDZAR correlation showing off with a positive 62%. This co-movement shows its weight in Figure 1 as well as in Table 2 for the years 2015 to end March 2017.

Table 2: Return summary **
Return Summary

Table 3: 2-year Correlations
2-year Correlations

In summary, there are a few findings to emphasize:

  1. The offshore component of the Top40 index is 62.00%.

  2. The Top40 and Top40 ex Local Index are more correlated to the GBP than the USD, whereas the Local Index is very highly correlated to the USD.

  3. Shares such as NPN, CFR, BHP, AGL, BTI, SNH and MND are most likely to impact the TOP40 index through large Rand movements.

  4. Shares such as BHP, BTI, BID, ITU, REI, MND, AGL and CFR are most likely to be impacted themselves by large Rand movements.

Using this information, an asset basket can be constructed with offshore and local exposure depending on one's call on the Rand:

  1. For local investments, if you expect the rand to strengthen against the Dollar, go long the shares with majority earnings local and that have performed the worst in the last year.

    Table 1

  2. If you expect the rand to weaken against the Dollar, then divest or short the shares with majority local earnings and that have performed the best in the last year.

    Table 2

  3. For offshore investments, if you expect the Rand to weaken against the British Pound, then go long the shares with majority earnings offshore and that performed the worst in last year.

    Table 3

  4. If you expect the Rand to strengthen against the British Pound, then divest/short the shares with majority earnings offshore and that performed the best in the last year.

    Table 4

The dynamic table provided above will allow you to sort the data by columns to identify these 4 opportunities. You can save this page to your favourites to keep coming here whenever you want, but bear in mind the table will become stale after a few days as share prices change and company results are updated.

The present economic climate makes it a tough to bet either for or against the Rand, but with the knowledge of the Top40 index earnings split and the strong positive correlation between rising local company earnings and a stronger Rand, a better-informed investment or trading decision can be made. Ultimately, the return of a share is still directly linked to the company's performance (or markets' perception thereof), but you can get a currency kicker depending on where they earn their revenues and if you are lucky to call the Rand direction correctly. 

If you want to see one (bullish) view on the Rand from a macro-perspective you can read this article "Bet against the Rand at your peril". 

To see how these strategies stacked up in the Cabinet Reshuffle, see this article "Top40 Major Movers Post Gordhan Recall". 

* Figures obtained from firm's most recent financial statements

** During 2014 we saw the Local Index outperforming considerably despite the Rand weakening significantly (-9.61%). This discrepancy was arguably caused by the three rate hikes announced in 2014. As a result of the rate hikes, banks (which are mostly local earners) went on a run, culminating in the JSE Banks Index returning 32% for the year and propping up the Local Index. 2014 was also accompanied by a lot of uncertainty in global markets, including the crash of the Malaysian airplane, the ongoing war in Syria, as well as Russia's annexation of Crimea and ensuing US sanctions to name a few.

*** The FTSE/JSE Top 40 Index was reconstructed using quarterly constituent data and making adjustments for index changes and corporate actions. The index uses free float-adjusted market capitalization methodology to determine the weight of each share in the index.


Joani van Wyk
Analyst, Sharenet Pty Ltd

Joani van Wyk joined the asset management team in January 2017, responsible for quantitative research of equities across all industries. Joani completed her degree in Mathematical Science in 2015, as well as an Honours degree in Financial Risk Management in 2016, both at the University of Stellenbosch.

The information contained in this article is for informational purposes only and must not be regarded as a prospectus for any security, financial product or transaction. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial issue. Investors should consider this research/article as only a single factor in making their investment decision. We recommend you consult a financial planner/advisor to take into account your particular investment objectives, financial situation and individual needs. The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Sharenet.

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