BNIC#1 Magnus Heystek: Foreign investment in SA and undiscovered opportunities in Japan and India
In his keynote session at BNIC#1 in Hermanus, Magnus Heystek discussed global investment strategies, emphasizing cycles in markets and the need to adapt. Heystek highlighted South Africa's potential recovery but notes ongoing political and economic risks. He advocates for diversifying offshore, especially in markets like India and Japan, while tactically investing in local opportunities.
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Edited transcript of Magnus Heystek's keynote address at BNIC#1 in Hermanus ___STEADY_PAYWALL___
It's such a great pleasure to listen to that. Thank you so much.
You know, Alec and I, as you said, have come a long way — and I mean a long way. It's been 44 years. And, you know, I've sometimes struggled to keep pace with Alec in these endeavours. I mean, he was the youngest winner of the Sunline Financial Journalism Award at 22. Then, he became Deputy Editor of the Financial Mail at 24, and after that, went on to become a senior executive at ABSA and pursued various other ventures, including listing MoneyWeb on the stock exchange.
Of course, there were some corporate fallouts — the ups and downs of the business world — but Alec kept going. He's done it again. I've tried to keep pace with him. One moment he's in London, then he's living on a farm with horses, and now he's in Hermanus. I was thinking this morning, they should make him the honorary mayor of Hermanus because he's really putting it on the map! If not the municipality, then at least someone like Pam Golding or Seeff should do it.
You're bringing a lot of attention and investment to this town, Alec. People are driving around saying, "Geez, maybe I should buy a little place here in Hermanus. Maybe I'll sell one of my plots in Mauritius and move next to Alec." So, well done. It's been a pleasure to follow your journey. Like Alec, I've spent over 20 years as a financial journalist, travelling the world, attending World Bank conferences, and visiting Davos many times.
This gave me a global perspective on South Africa's position in the world — something not all advisors have. Many tend to focus only on the local market. But when you look at investment markets and the larger cycles, there are times to be in the South African market and times to be out. That's one thing to remember — those big cycles.
From 1961 until about 1998, it wasn't possible to take your money offshore and invest it elsewhere. Meanwhile, there was a man named Peter Lynch, whose books I read. During the boom period of his fund management career, he generated returns of 29% per annum in dollar terms, over a very long time.
South Africans, however, were stuck on the sidelines because it was illegal to take money out of the country. Peter Lynch's advice was simple: "Are things getting better or are they getting worse?" He applied this to countries, currencies, and companies, and remarkably, it worked. I adopted this mindset when I started giving advice professionally. When I advised clients, I always asked myself: Are things getting better or worse for South Africa?
And it worked. From 1998 to 2002, it was a good time to be in South Africa. We avoided the 1998 Russian crisis, the Asian crisis, and even the 2001 dot-com bubble burst. The currency was at one stage R13 to the dollar, but it eventually dropped to around R6.50. We had China joining the World Trade Organization, and our resources boomed — our trade balance shot through the roof.
It was a great time for South Africa, from 2002 to 2010. We also had the added benefit of hosting the World Cup. We saw major infrastructure projects — stadiums, hotels, and the Gautrain were being built. Even our friend David Shapiro started a construction fund because he was so bullish on South Africa.
John Beckard's value fund, for example, was delivering returns of 30–40% year after year, and we made a lot of money for our clients during that time. The cycle was in South Africa's favour, and avoiding the U.S. market was the right call, given the lack of growth in the S&P 500 during that period.
But things started changing in 2011.
This was the point where I began asking on behalf of my clients: Are things still good here? That's when we started recommending offshore investments. Back then, the single discretionary allowance was only about $100,000 per person, with an additional investment allowance of about $400,000.
To give you some context, my wife and I were lucky enough to join an investment tour in the U.S. in 2014–2015, and earlier in Japan. The U.S. trip, arranged by Investec, included seminars and meetings with giants like Google, Facebook, Amazon, Tesla, Boeing, Wells Fargo, and Starbucks.
The innovation, energy, and sheer scale of money pouring into these companies was astonishing. When I came back to South Africa, I thought, How can I give my clients access to this kind of growth? The answer was that we had no exposure here. There were no analysts or roadshows highlighting these opportunities.
So, we reached out to funds like Fidelity and Templeton, and created access for our clients. Those who got in early saw compound growth of over 20% per annum. I wrote about this on Alec's website. One of our clients, who invested R10 million with us in 2015, would have seen that investment grow substantially.
Today, that R10 million would be worth around $115 million if invested offshore. Even the best local fund manager wouldn't have been able to achieve half of that. South Africans missed out on an incredible bull market largely due to lack of access.
Unfortunately, I earned the nickname "Dr. Doom" or "Mr. Doom" because I was advising clients to take their money offshore. But I was just following the facts, not emotions. I even got criticized by colleagues who insisted I was wrong. One colleague even said I was talking "absolute nonsense."
But here we are, 10 years later, and we can see the results. The exchange allowances increased in 2015, but many fund managers misread the market, thinking South Africans were happy keeping their money local. They underestimated the desire to move money offshore, for political or financial reasons. The outflow of money has been enormous.
My late friend Mike Schussler estimated that by last year, around R3 trillion had left the country. This explains much of the poor performance of local stock markets.
The big local asset managers didn't keep up. For instance, Coronation's assets under management were about R600 billion 10 years ago. It's the same today. They haven't attracted new flows because discretionary money has been leaving.
Even the big players have started forming international relationships, but it's almost too late. They missed the boat.
I've always asked, Are things getting better or worse? Right now, local markets are outperforming, but is it real? We could be seeing another brief honeymoon period, as we did with Ramaphoria, where the optimism fades once reality sets in.
So, if things improve, we'll advise clients to adjust their local portfolios. This could mean increasing exposure to local equities. Right now, we recommend about 75% offshore equity for most clients, with 20–30% in South African bonds and cash.
To conclude, if someone asks me whether the JSE or Wall Street could drop 30–50%, my answer is yes — but I just don't know when. That's the problem. If you react to every forecast, you'll drive yourself crazy. If you can't stomach a 30% decline, you probably shouldn't be in the stock market.
Lastly, who here has money invested in Japan? Or in India? Probably no one. But did you know the two best-performing stock markets over the last 20 years have been India and Japan? It's something to think about. Thank you very much, ladies and gentlemen.
Edited transcript of the Q&A session with Magnus Heystek at BNIC#1 in Hermanus
Alec Hogg:
Because you began by explaining the cycle — that it was a good time to be invested in South Africa, and then there was a cycle when it was a good time to be invested in the US. We spoke off-air about John Maynard Keynes saying, "When the facts change, I change my opinion." So, what are you doing right now? Is the cycle…
Magnus Heystek:
Well, it's too early to tell. You know, as Marchantin said when asked about the French Revolution: "It's too soon to tell. It's only been 200 years." The signs are there that the South African market is starting to attract some interest, but the money isn't flowing in yet. There has still been a negative outflow of bonds and equities, so it's mainly local buying at the moment.
Alec Hogg:
So it's local buying, not foreign buying?
Magnus Heystek:
Yes, it's local buying. I think it's people like Sai moving money here and other fund managers doing the same. One of the key things I look at on a monthly basis is whether foreigners are buying. As of now, they are not. I checked the stats yesterday — still negative last month. If they start buying consistently for three to five months, that will be a sign that they're coming to the party.
Alec Hogg:
So that hasn't happened yet?
Magnus Heystek:
No, it hasn't. It's still mostly local portfolios showing some interest, but the big foreign players haven't returned yet. Secondly, we need to see an uplift in economic growth. Both Sai and Sean have spoken about our poor growth. There's also the political uncertainty with the GNU (Government of National Unity). I don't think foreign investors will come in significant numbers with large amounts of capital until they can trust what they see in the GNU. There are still too many stumbling blocks, like the national health insurance legislation and other political risks.
Alec Hogg:
If someone came to you with new money, what would you advise?
Magnus Heystek:
For new money, depending on your risk tolerance, I would hold back on sending money offshore for now. I would probably put it into one of the local funds where there's a bit of momentum. But this is purely a tactical, short-term decision. Long-term, offshore is still my preferred choice. However, there is money to be made in the local market. How long will this last? That, I don't know.
Alec Hogg:
Rob Hersov always says South Africa is not investable. Do you think South Africa is investable?
Magnus Heystek:
Yes, of course. There's still money to be made in South Africa, whether it's in the stock market or property. My wife and I have bought properties in the Western Cape — in areas like Tyger Valley and Reebok, which is seeing fantastic growth. But I would not buy property for speculative purposes in an ANC-controlled province. The Western Cape is where I would invest.
Alec Hogg:
That's a big shift, Magnus. You've been pretty negative, but now you're buying property, which is one of the biggest votes of confidence.
Magnus Heystek:
Yes, I know. Some people were angered by my views, especially in the media, but my decisions are based on facts, not loyalty or patriotism. The media doesn't cover half of what has happened in South Africa over the last 10 years. But yes, the facts are changing. There's a migration of wealthier people from the north to the south — to Hermanus, Paarl, Franschhoek, and the Cape — and property prices there have done well.
Alec Hogg:
Are we getting better or worse as a country?
Magnus Heystek:
The mood has improved. Behind the scenes, things like Operation Vulindlela are starting to do good work. We've seen some progress with Eskom and the railways. However, the two biggest issues for me are unemployment and crime. Without solving these problems, South Africa will not be investable in the long term.
Alec Hogg:
So law and order, and property rights are still big concerns?
Magnus Heystek:
Exactly. I remember an interview with Dr. Simon Murray, who said the first thing he looks at when investing in any country is law and order, and the protection of property rights. We're still struggling with law and order in most parts of the country. Things might be improving, but it's still too early to tell.
Alec Hogg:
We'll have Ian Cameron and Neil de Beer speaking about these issues at our conference in March. There's a sense that the new police minister is a massive improvement.
Magnus Heystek:
That wasn't difficult. But back to your question: when looking at crime, is it getting worse or better? I'm not an expert, but it doesn't seem like it's improving. However, there might be some early signs of improvement. I'm more optimistic now than I was six months ago.
Alec Hogg:
What about global markets? If Wall Street blows up, where should people be looking?
Magnus Heystek:
The world markets are on the expensive side. You need to look at other parts of the world, like India or Japan. India has outperformed the S&P 500, and Japan has done exceedingly well too. Most people don't know this because the media focuses heavily on the USA. But there's a whole world of opportunities out there. Argentina is an exciting market, and so is India.
Alec Hogg:
How should investors get exposure to India and Japan?
Magnus Heystek:
Orbis runs a very good global Japan equity fund, and Franklin Templeton has an excellent India fund. There are also ETFs that track these markets. It's important to talk to your advisor about diversifying into these regions.
Here is the edited transcript, separating the questions of interviewer Alec Hogg and the answers of Magnus Heystek, with improvements in spelling, grammar, and context:
Alec Hogg:
Fourie wanted to know—I'm not sure if Fourie is the first name or surname—but what is your view on passive versus active investment funds, especially given the low percentage of active fund managers that actually beat the market?
Magnus Heystek:
From an advisory perspective, there's no such thing as passive investing. Think about it—what is passive investing? The instrument might be passive, but the choice and the asset allocation are never passive. They change all the time. Many people make the mistake of thinking, "Oh, I'll just buy the S&P 500," but, as I mentioned earlier in my talk, for the last 10 years, those markets haven't performed well because they started from a very high valuation point. Who says that can't happen again? Even with so-called passive investing, there are major risks attached. The advisor uses passive instruments to create a portfolio, depending on the client's needs, and that changes over time.
Alec Hogg:
And what about the argument to disregard active managers altogether and just put everything into index funds? Where do you stand on that?
Magnus Heystek:
It depends on who writes the articles and promotes the idea. Yes, there has been a big move toward passive funds, mostly because of cost concerns. But strangely enough, many of our active managers, like Ranmore, have outperformed various indices. And it's important to note that we work with managers like Sean because we can talk to them regularly, understand what's happening inside the fund, and make informed decisions. Many large fund managers don't communicate this way. Right now, for instance, Sean's team is very underweight on the U.S. market and overweight in other regions, and we're comfortable with that because we know what's in the portfolio.
The same goes for Orbis Japan Fund—it has outperformed all the indices by a substantial margin. The passive industry likes to point out that many active managers underperform, but they don't mention that 20% of managers outperform the market. You just have to find them, and we do. It's like hiring a plumber—you wouldn't get someone who doesn't know what they're doing. You look for recommendations and proof of their skills. It's the same with investment managers.
Alec Hogg:
Rene Kilner asks, have you ever considered giving investment advice related to traditional marriages in South Africa?
Magnus Heystek:
I thought all marriages were traditional! I don't really understand the question—are three wives not enough for me? (laughs)
Alec Hogg:
Magnus, we're coming to the end of today's proceedings. I know you had a medical emergency this morning, but you're feeling better now?
Magnus Heystek:
Yes, I'm doing better, thank you.
Alec Hogg:
This afternoon, there's been a strong theme of danger overseas, particularly in America. South Africa has been through tough times for so long, and you've correctly advised people to stay away from this "crazy place." But now, the investments here are starting to appeal, certainly to people like Frans Cronje. Five years ago, when we had coffee, he was extremely negative, but now he's optimistic. What do you think is driving this change?
Magnus Heystek:
I think it's driven by facts. I hope it's the beginning of a period of recovery because if you look at the last 10 to 12 years, the South African middle class has almost been wiped out, and it shows in economic indicators. For example, even sales of basic items like biscuits have declined because people don't have disposable income. Residential property values, outside of the Western Cape, have been stagnant or declining. Pension funds haven't beaten inflation by much, and with the currency dropping from 11 or 12 to 19 to the dollar, the purchasing power of the average South African has diminished.
There are no more signs of wealth in luxury goods or car sales because people simply don't have the money. But now, with a potential recovery, it's coming at a critical time for the South African economy. Is it a major upturn? It's too soon to tell, but for the first time in 12 years, I feel a bit more confident. Alec feels more confident, and many others are starting to as well.
Alec Hogg:
We've seen a lot of economic and political changes over the last seven years. The ANC's dominance has decreased, and coalition governments are now a real possibility. What does that mean for South Africa's future?
Magnus Heystek:
I think the fact that the ANC's dominance has dropped from 57% to 40% shows that South Africa is now a country ready for coalition governance. This is a critical time for us to put that to the test, and I hope we've matured as a political society just as our voters have matured. Richard Quest from CNN once said that South Africa's democracy wasn't yet mature enough to make the necessary changes, but the results of our recent elections suggest otherwise. The public is tired of the status quo and wants politicians to work together.
We've surprised ourselves before—just look at the Springboks, beating the All Blacks four times in a row for the first time since 1949. There's potential for the same kind of success in our governance and economy if we get things right.
Alec Hogg:
Magnus Heystek, members of the tribe, thank you for being here today. It's been a privilege to host the first investment conference here in Hermanus. We'll have another one at the same time next year to provide an update. For now, we're off to the golf club to have pizzas and a fireside chat with South African-American entrepreneur Bryan Smith. Thank you for coming, Magnus—it's been a pleasure as always.
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