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Plan for an explosion in personal wealth
By Magnus Heystek22 April 2021 12:35
The past ten years have not been a very good decade for most South African investors. Your pension and equity portfolio have not risen much over this period.

In fact, it was one of the lowest average ten-year returns in many decades. If inflation and transaction costs are taken into account, then most people today have much less in real terms than they think.

When the returns of the JSE over ten years are measured against the major world regions, the average returns were among the weakest in the world.

And as last week's article pointed out, yields in US dollar terms were round zero.

See below the chart of JSE's returns against the major investment regions in the world over ten years, expressed in rand terms. Investment in the US has grown five times faster over this term than in the domestic market.


Properties were also not a good investment, despite the frequent statements in the media that property - especially residential properties - is such a wonderful investment. The truth, if one uses FNB's residential barometer, is that property has fallen by about 23% in real terms over ten years.

If the price is expressed in US dollars, the decline was an estimated 60% to 70%, compared to other parts of the world, where most experienced rapid increases in property prices.

Earlier this week, Brenthurst Wealth's consulting economist Mike Schüssler also pointed out to Netwerk24 the rapid decline in the per capita wealth of the average South African. It has dropped from 71st to 75th in the rankings over ten years and Schüssler estimates it will drop to 85th at the current rate by 2035.

This decline is also not going to end all of a sudden. In 20 years, if the country impoverishes at the current pace, SA will be one of the poorest countries in the world.

South Africa's middle class - people with a home, pension fund and perhaps other savings instruments, such as unit trusts or listed shares - still live mostly in a kind of dream world that everything is still fluffy, that they seem to be experiencing an increase in personal wealth. This dream world is encouraged by local financial companies (insurance companies, asset managers, real estate marketers and others).

Brenthurst Wealth and I started taking investors' money overseas more than ten years ago.

At first, the aim was pure diversification. Things were at the helm in the technology and biotechnology market, mostly in America, and investors in these sectors made returns of more than 1,000% over this period.

Local conditions

But since 2015, the main motive for taking money abroad has been local economic and political factors. State capture has been in the news for many years, as we can see in the evidence heard at the Zondo Commission over the past year or so.

But it's not the only place where decay and decay have taken place. It was visible everywhere - a direct consequence of the ANC's policy of cadre deployment in "all positions of power in the country", according to Gwede Mantashe's submission. This recognition of a policy that has been speculated about for years has coincided with acknowledgments that more than 30% of civil servants are not qualified for the work they are required to perform.

This in a public service that has more than 30 000 workers who earn more than R1 million a year!

Then there is the collapse of state-owned enterprises. Virtually all state-owned enterprises are bankrupt or collapsing - without exception. Some of the effects of the crash are visible, such as Prasa's railway tracks and stations, which look abandoned and dilapidated there. Others, again,'s decay is not so obvious, but can be seen in the bankruptcy figures when financial statements are finally published. Some state-owned enterprises, such as SAA, flatly refuse to publish audited statements.

Last week, Rapport also published the report of Ratings Africa which indicates that most municipalities, with the exception of the Western Cape, have been completely bankrupt and almost irreparably destroyed by this toxic combination of cadre deployment, black economic empowerment and simply corruption and crime.

Neil Froneman of Sibanye Stillwater also put his finger on this rot earlier this week when he warned that foreign investors take note of this decline (roads, water, electricity and municipalities) and then rather invest their money elsewhere. It was in the same week that chicken producer Astral had to sue the government in order to force Standerton to provide clean drinking water for the town and its plant.

And then there are local asset managers and investment commentators who continue to market SA as an investment destination.

A few years ago, the investment giant Old Mutual toured nationwide and tried to convince its thousands of brokers that the JSE would be "one of the best markets in the world". The return on the Old Mutual Investors Fund's largest fund with assets of R12 billion over the past five years is negative.

Nevertheless, the asset managers and even the media continue to simply hide all the bad news under the table.

Many investors are not financially savvy and do not understand this slow-but-certain economic decline every day.

But it hits hard when imported goods have to be purchased, such as cellphones, cars, computers, and even overseas travel (to visit children and grandchildren in the SA diaspora).

Big clock

Hanging this slow and systematic decline on the big clock is a very unpleasant experience. It is well known that I am a big supporter of foreign investment. . . now even more than ten years ago.

One is approached by all sorts of things. One of SA's top economists taunted me many times in public ("naive, stupid and negative" on Moneyweb) when I wrote about this economic and social decline. "Oh fool, man," was the response. "Everything is under control and soon the economy will grow by 4% per year," it was announced to the public. That was in 2017.

Other commentators and even editors have only until recently been quite hesitant to write about this decay, but these days it can no longer be ignored.

In 2014, the well-known commentator and author of several books, Max du Preez, took issue with the publication of his book Rumor of Rain against people who warned about the deteriorating conditions in SA and unequivocally said: "SA is not on track" to become a failed state. ”

But recently he made a round in the Vrye Weekblad and he now speaks continuously about the collapse / bankruptcy of SA and its economy.

There was also a shift in emphasis in the English press. In one of his recent columns, Peter Bruce, former editor of Business Day and Financial Mail, writes, "everything is falling apart." This after until recently he sang in the leading choir about so-called Ramaphoria.

Ethical obligation

As a financial adviser and commentator, there is an ethical and moral obligation to be at least as honest as possible in one's view and interpretation of this systematic deterioration and impoverishment that is dragging most down in SA.

I am often asked where SA will be in ten years. And the answer is very simple: if there is no drastic turnaround in the ANC's economic policy and management of the economy, this trend will continue and in fact pick up speed.

Foreign investors on the JSE have withdrawn more than R500 billion over the past five years and there is still no sign that this trend is reversing.

The rand is currently relatively strong and there is a lot of fuss about the strengthening of the currency from R19.35 in March 2020 to levels around R14.50, as if it should be seen as a sign that everything is fine with the country and its economy.

In addition, the short-term performance of the JSE, especially around October to the end of March, is driven by a sharp rise in the prices of platinum shares (Implats, Northam and Angloplats) and other resource shares, such as Kumba and Glencore. Out of the top ten stocks over the past year, eight prices were driven by factors in foreign markets, rather than improved conditions in the local economy.

Take Naspers / Prosus out of the JSE show over the past decade and the end would have been very sad for the rest.


Magnus Heystek is a director and investment strategist at Brenthurst Wealth. Photo: Jeremy Glyn Photography
So, again the question: where do you want to be in ten years with your investments?

The answer is a gradual downsizing and reduction of local assets (property, shares and bonds) and a slow build-up of exposure to asset classes that are not affected by the ANC's mismanagement of our future.

I have no plans to leave SA and am in the happy position that all my children and grandchildren are still here. But I will make sure that a growing part of my investments end up abroad. That's the best guarantee I can think of.