Ramaphoria has all but evaporated, the economy is in recession, EWC and the erosion of property rights is ever present and the only thing on the up is the price of petrol. Needless to say, 2018 has been a rather bleak year for investors in South Africa. Even property is no longer delivering the reliable growth that it has in the past and the JSE is down -3.5% year to date.
Figure 1. Returns over the past 12 months on the JSE have been poor, with high volatility.
The Rand continues its long-term trajectory of losing value against all developed-nation currencies. In previous decades, the growth of the JSE has offset these losses, however, the situation since 2010 has been one of economic stagnation, resulting in foreign markets outperforming our own when priced in US Dollars.
Figure 2. When priced in US Dollars, the JSE has been significantly outperformed by the S&P 500 (US Markets).
Emerging markets (our economic contemporaries) have been booming until recently, but most impressive has been the growth of the US economy over the past 18 months. The S&P 500 index is approaching an all-time high once again and GDP growth in the US is strong again.
Figure 3. Over the past 5 years, the JSE has returned 0% when priced in US Dollars. Emerging markets have also outperformed the JSE.
The growth of the US markets are not without their own concerns though, particularly in terms of the rising deficit spending coupled with a cut in taxes. This basically just means that the US government hasn’t cut spending but they have slashed their incomes. That being said, numerous market commentators have been calling for another 2008-style market crash since 2009 and at some point in the future, they are bound to be right. However, there is no way of knowing when this can happen, it could be 10 years from now. It is simply a market risk that is associated with investing in any market.
With all of this in mind, the solution to local investment woes lies in investing offshore. The Rand has recovered substantially over the course of last week and thus may offer a good window to take your money offshore. The long-term trend, as always, remains that of a weakening rand.
Figure 4. Since 2013 the Rand has lost 35% against the US Dollar. Approximately 6% per year. This continues to the long-term trend of Rand devaluation.
Once you have decided to invest offshore, that is half the battle won. However, in light of the potential risks facing the US market, it may be prudent to invest in a multi-asset fund which takes a balanced approach. This means that you have a maximum of 75% exposure to equities, with the remainder invested in property, bonds and cash. This asset allocation provides you with a lower risk profile than pure equity funds and reduces your recommended time horizon to the 3-5+ years window.
Investing offshore has been the way to go over the past ten years, but taking a balanced approach to negate market risks may be a prudent strategy. The Sharenet Global Balanced Fund of Funds is a great mix of active and passive strategies, designed to reduce investment costs and maximise returns. Year to date this fund has performed extremely well, boasting growth of over 18%!
Figure 5. Returns of the Sharenet Global Balanced Fund Of Funds, year to date.
Ricki specializes in the field of wealth management with a focus on holistic financial planning. He has a keen interest in the investment fields of property, technology, precious metals and cryptocurrencies. Ricki also holds a Masters degree in Science from the University of Stellenbosch.