Magnus Heystek: Why I am investing in South Africa again

Investment strategist Magnus Heystek, who is well known for his brutally straightforward views on the economy, has become a cautiously optimistic man. In this interview with BizNews, he shares the positive signs he has picked up from following all the economic indicators – and lists the priorities that remain to prevent a return to the edge of the abyss. “…after 10 years of saying things are bad, I’m saying things are starting to look generally a little bit better, provided the Government of National Unity sticks to its task and manages to cobble a coalition together and do the right things.”  However, he adds this warning” “The danger is, of course, that there’s a political fallout as some people have predicted, and the new government falls apart, then the risks are all back on the table.” Meanwhile, he has already invested in more property in South Africa…

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

Join us for BizNews’ first investment-focused conference on Thursday, 12 September, in Hermanus, featuring top experts like Frans Cronje, Piet Viljoen, and more. Get insights on electricity and exploiting SA’s gas bounty from new and familiar faces. Register here.

Watch here

Listen here

Highlights from the interview

Investment strategist Magnus Heystek, known for his candid views on the South African economy, expresses cautious optimism. Heystek clarifies that his previous critical assessments were based on facts and independence from major corporations, reflecting the economy’s poor state over the past decade. He mentions that former Reserve Bank Deputy Governor confirmed South Africa’s near-economic collapse two years ago. Heystek notes recent improvements in key economic indicators, likening them to a patient in ICU showing signs of recovery.

One major positive is the absence of nationwide blackouts for 104 days, suggesting improvements in Eskom’s operations, including maintenance and private sector investments in electricity. Additionally, the country has seen a budget surplus excluding interest costs for the first time in 15 years, and legal actions against corrupt politicians are progressing.

Despite these improvements, Heystek advises against repatriating offshore investments due to better returns abroad. However, he acknowledges the potential in local balanced and property funds, particularly in the Western Cape, where property markets are buoyed by wealthy and skilled migrants. Heystek highlights the dire state of residential property outside the Western Cape and poor returns on local pension funds, leading to wealth erosion for the middle class.

Heystek concludes by emphasizing the need for continued focus on infrastructure improvements in railways, ports, and electricity. He remains cautiously optimistic, contingent on political stability and effective governance, which could lead to significant economic recovery in the coming years.

Extended transcript of the interview ___STEADY_PAYWALL___

Chris Steyn (00:02.605)

Investment strategist, Magnus Heystek, who is well known for his brutal views on the economy, has become a cautiously optimistic man. Welcome, Magnus, and tell us what has changed.

Magnus Heystek (00:17.164)

Well, good morning, Chris. Thank you for that. But I don’t like the word brutal. I mean, but maybe that’s true. It’s just an honest observation, as you well know, and to the viewers of this programme and people who read my articles on BizNews. You know, I’ve just been factual about what has been happening in South Africa for the last 10 years. And because I’m independent, I don’t work for one of the big corporations or the banks or the asset managers, I’m free to speak my mind. It was all based on fact, not emotion or my own personal feelings. 

And I think I’ve been vindicated by Ruben Naidoo ex-Deputy Governor of the Reserve Bank who a week or two ago said about two years ago, we were facing the abyss as far as the economy was concerned and we were literally peering over the abyss and then unfortunately we’ve moved back a little bit. So that was quite an acknowledgement from someone in the inner circles and I think that was reflected in things like the bad performance of the stock market, the property market, and our ratings, our credit ratings, the currency. It was just a reflection of how bad it was, although the powers that be and other vested interests who did not want to admit how bad it was. So there was the confirmation. 

We came right to the bottom as far as the economy is concerned. And if things didn’t change it would have gotten horribly worse. So fortunately, and this is my comments in my article, slowly but surely we seem to be stabilsing if one looks at the vital indicators of the economy. It’s like you’re lying in the ICU and you’re strapped up to all these machines. And some of these indicators are starting to improve. Let me start with the more noticeable one.

Chris Steyn (02:11.533)

Yes, I just want to ask you what are the positive signs that you are seeing right now as you track these economic indicators?

Magnus Heystek (02:19.788)

Well, first of all, the Eskom situation. We were all cynical that they’re going to sort it out for a short term before the election, but we’ve had 104 days without blackouts, countrywide, which is, and in the middle of a very, very cold winter. So something is happening at Eskom and I don’t fully understand what they’ve done and one needs to analyse it in greater detail, but it would seem to be maintenance is taking care of some of the problems. You’ve had Kusile that’s come online. Koeberg is coming online next year. Plus you’ve also had massive investment by the private sector and private individuals who’ve gone off the grid. They’re supplying their own electricity. And then, of course, very poor demand from the mining industry. So yes, let’s take that as a win. It’s good news for small businesses, medium businesses. That’s a very good indicator. 

Other indicators are the budget deficits are starting to come down. We actually had a first budget surplus excluding interest costs in 15 years. One has to acknowledge that is an improvement. 

And then, lastly, if you look at some of the politicians who found themselves in court on various fraud charges, the Speaker’s got, I mean, that surprised a lot of people that there has been some movement on nailing some of the criminals who have been in our government. We, of course, were also saying we want more. 

And then, of course, you have a, you know, there seems to be a leveling of confidence. The general election was peaceful. It didn’t…the ANC didn’t tie up with one of the radical Left parties. 

So, and I’m not saying this is going to turn around dramatically, but one has to have knowledge when there are good positive signs in the economy. And that was just the thrust of my article.

Chris Steyn (04:30.093)

So with this turnaround now apparently starting after we practically hit rock bottom, are you adjusting the investment advice that you are giving at the moment?

Magnus Heystek (04:41.452)

Well, that’s the big question everybody’s asking. First of all, they say, am I going to bring back all the money I took offshore from my clients? No, the answer is no. Those clients will not bring their money back unless they needed to live in South Africa because A, it is already offshore and B, their returns have been phenomenal. I mean, the S&P500, Nasdaq, even the MSCI world indices are at record levels. I mean, today as we speak, S&P500 at record levels, Dow Jones record levels, Japan hit a new record high. So there are phenomenal investment opportunities elsewhere. So the offshore theme is not changing whatsoever. 

Where the investment recommendation is changing somewhat is in terms of the asset allocation of local funds.  In the sense that, at Brenthurst, we’ve been very strongly recommending local enhanced income funds and bond funds for a long time and that’s done very, very well with low volatility.

We’re starting to look at some of our well-managed balance funds and also at some property funds. We seem to think that after a six-year bear market in property, there seems to be some movement. The property, listed property sector is outperforming the equity market. And again, it’s coming from the bottom of bottoms. 

I mean, if you depending on what period of time you take, it was like 10 years that the listed property sector gave you no returns. And suddenly, if one takes into consideration some of the work done with electricity and municipalities, and a slight upturn in consumer expenditure, property listed property, bricks and mortar starting to offer some value.  And we were looking at that and that might be a place to reallocate some funds. 

So it’s very nice not to keep on warning how bad it is and the warnings were accurate. I feel more positive. 

I’ve invested some more money in property in South Africa, believe it or not, in the Western Cape. 

Magnus Heystek (07:06.924)

The Western Cape seems to be broken away from the rest of the South African economy due to an influx of wealthy people, skilled people who want to move down to the Cape where it’s better managed. So the property market in the Western Cape, Paarl, Franschoek, Stellebosch, Atlantic Seaboard, George, Mossel Bay, Hermanus, totally different market to the rest of the country.

I mean, I tweeted this morning about a property that I sold in the Four Ways area 15 years ago, and I saw on Property 24, that property is back on the market at less than I sold it for. 

And the Lightstone Property Report indicated that with the exception of the Western Cape, most people who have bought residential property in the last 10 years will today sell it at a loss. Now that’s quite a statement. It means no capital growth on your residential property and combine that with very, very poor returns on your local pension funds, which has been averaging about 7 to 8 percent. So there’s a 10 years of wealth destruction that has taken place. 

Hopefully we’re reaching the end of that cycle that has pushed a lot of people in sort of upper middle class down into lower middle class with very limited resources because they’ve had no capital appreciation on the investments.

And you can see that impacting on things like car sales. This is one of the biggest indicators, which are still very negative. Car sales have just become so expensive, or car prices, that people just can’t afford it. From an average of two cars per family for wealthy people or middle class people, that’s moved to one. People are sharing cars, they’re using Uber or Bolt or whatever. So there’s been tremendous downward pressure on motor car sales because of affordability issues, because of high interest rates. But, you know, after 10 years of saying things are bad, I’m saying things are starting to look generally a little bit better, provided the Government of National Unity sticks to its task and manages to cobble a coalition together and do the right things.

Magnus Heystek (09:30.988)

The danger is, of course, that there’s a political fallout as some people have predicted, and the new government falls apart, then the risks are all back on the table.

Chris Steyn (09:39.085)

Despite all these encouraging signs, Magnus, what would you like to see happen still to further strengthen the apparent recovery?

Magnus Heystek (09:47.692)

What is doing what we are seemingly doing, Operation Vulindlela, is you need to focus on the railways, on the ports and electricity. Those are the three biggest factors. Fix that and everything will sort itself out because it affects, it’s like the arteries in your body. If you unclog it and the system works, things will improve fairly dramatically. 

I mean, the mines is a big issue. That’s the…if you look at the history of South Africa, that’s where South Africa has made its money. Going back to the times of the discovery of diamonds and then gold and then other stuff, the mines carried us through created a tremendous amount of wealth, but the destruction of the mining industry in the last 15 to 20 years under Gwede Mantashe, that still is our biggest issue. 

It’s no good having all these mineral reserves, but we can’t get it out, can’t get it to the ports and we can’t export it. So those are the big issues. 

Solve a couple of those issues, three or four, and the private sector will come to the party. Average individuals who are committed to this country will come and invest money because they have a lot of money available. And the foreigners would like to see South Africa survive. They really do. I mean, it is, in many respects, a very fantastic country and it’s our home. But do the right things, and a lot will follow. So we might be surprised three or four years from now, provided the political parties manage to hang in there.

Chris Steyn (11:24.301)

Thank you. That was Magnus of Heystek of Brenthurst Wealth, sharing some good news with BizNews viewers. Thank you, Magnus and I’m Chris Steyn.

Read also: