For the past dozen years, Brenthurst Wealth founder Magnus Heystek has (correctly) been consistently bearish on South African assets. In this interview with BizNews editor Alec Hogg he explains why things may be turning – explaining that the bullish mood among locals could spark global capital inflows.
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Highlights from the interview
In this interview, Magnus Heystek, a financial expert from Brenthurst Wealth, shares his insights on various investment strategies, including Bitcoin, offshore investments, and the performance of small and mid-cap stocks. Heystek expresses optimism about South Africa’s government of national unity, suggesting that it has the opportunity to step up and capitalize on potential growth. However, he warns that booms don’t last forever, and the government must act decisively to avoid missing out on another investment wave.
Regarding Bitcoin, while younger advisors in his firm recommend it, Heystek personally cannot endorse it due to the lack of clear, rational indicators. He prefers to avoid investing in assets he doesn’t fully understand or believe in.
Heystek emphasizes the importance of tracking market trends and suggests that small and mid-cap stocks will likely benefit from declining interest rates, outperforming the highly weighted “Magnificent Seven” tech companies. He advises investors to stay informed and cautious, warning against following media hype when markets are peaking, as smart investors often exit at such times.
He also predicts lower returns in rand terms from offshore investments going forward, advising investors to anticipate future trends and reallocate their portfolios accordingly.
Edited transcript of the interview ___STEADY_PAYWALL___
00:00:07:12 – 00:00:45:15
Alec Hogg
Magnus Heystek, the founder and chief investment strategist of Brenthurst Wealth, is with us to give us an update on how he’s seeing the world. It’s been a very interesting couple of weeks, Magnus. Seeing you at the BizNews conference and hearing your presentation, it’s going to be disclosed. I won’t take too much away from the keynote today, but just a general thought: I left the biznews investment conference two weeks ago, on Thursday, with quite an upbeat tone.
00:00:45:15 – 00:01:01:12
Alec Hogg
It felt to me like the government of national unity, if it holds, will be very good news for South Africa, and the electricity situation is now certainly on a better trajectory than it was in the past. What were your takeaways?
00:01:01:14 – 00:01:21:13
Magnus Heystek
You know, I’ve been in Somerset West for almost ten years. It was great to be back in that lovely little town called Hermanus, which is now your hometown. As I joked in my introduction, I think Hermanus should make you the mayor because you’re attracting a lot of new faces into that town.
00:01:21:13 – 00:01:52:02
Magnus Heystek
I spent three days in the middle of town, and it was a very pleasant experience. The mood was very positive, not only amongst the people at the conference but also after the conference during the fireside chat, which was quite smart. To summarize it, I think people realized or felt that the country dodged a bullet in the sense that the government of national unity has turned out far better than many expected.
00:01:52:04 – 00:02:15:15
Magnus Heystek
Much better than a possible ANC, EFF, and MK alliance, which was being discussed before the election. There was a palpable sense of relief, and you can already see it in the currency. I’ll get back to the currency in a second. The stock market is also up very nicely.
00:02:15:15 – 00:02:49:23
Magnus Heystek
It’s important to point out that local equities, mid-caps, financials, and property stocks are being driven by local money, not foreign money. The foreign money is yet to come. But overall, the mood is positive. Interest rates have been reduced, and the rand is a bit stronger now. I think it’s about time for South Africa to have a period of good fortune, during which we can rebuild our balance sheets, both personally and as a country, because if you look at the last ten years, our balance sheets have been under severe pressure.
00:02:50:00 – 00:03:07:23
Magnus Heystek
We need a period of optimism and good fortune, provided the government of national unity holds. It’s in the hands of the ANC and DA to do the right things to keep the country on a higher growth trajectory.
00:03:08:00 – 00:03:30:05
Alec Hogg
I’m glad you mentioned that, because at the conference itself, you brought a sense of realism. Up until your closing remarks, everything was very upbeat and positive. You said, “Yes, I am feeling more positive, but hang on a minute, it doesn’t mean that happy days are necessarily guaranteed.”
00:03:30:07 – 00:03:35:00
Alec Hogg
Could you elaborate on that?
00:03:35:02 – 00:04:09:22
Magnus Heystek
Not at all. If you look at it from an economic perspective, the damage that’s been done to the economy, personal balance sheets, and the mood of the country is enormous. It’s going to take a while—I’m not talking about weeks or months, but years—to rebuild those balance sheets. This recovery will come in the form of better stock market performance, which will boost personal balance sheets, improved pension fund returns, and a recovery in property values, particularly for most people outside of the Western Cape.
00:04:10:00 – 00:04:39:23
Magnus Heystek
That’s been one of the main disasters. A recent study by venture capitalists showed that over the last ten years, South Africa was one of the slowest-growing countries in terms of wealth measured in dollar terms. In fact, it was almost last. Although still slightly positive over ten years, South Africa lagged far behind fast-growing countries like Vietnam, China, and the United States, among others.
00:05:07:12 – 00:05:27:15
Magnus Heystek
So, the economy needs to rebuild its balance sheets, and more importantly, individual investors need to do the same. This is hopefully the start of that process. We’ve seen the drop in interest rates—it’s a beginning. But the real change will come when foreign investors start buying our stocks. Unfortunately, there’s not enough evidence yet to prove this will be sustainable. We’re still downgraded. But if they do start investing, you’ll see it in the currency and the stock market.
Read more: Magnus Heystek sees hope for SA’s economic revival: Calls for bold tax reforms
00:05:36:21 – 00:06:09:01
Alec Hogg:
Because we are so small, we ran a very interesting story yesterday, based on an overlay that was sent to us from the Government Communication Service, of a very happy meeting between Elon Musk and Cyril Ramaphosa. The two of them were—well, they hadn’t even turned off the sound completely. And I said to Elon, “Thanks for coming up to my room and having a…” Clearly, they had a very happy conversation.
00:06:09:01 – 00:06:36:21
Alec Hogg:
We know that Starlink is something that could unleash a lot of energy in South Africa if, let’s say, Elon were to give South Africa the thumbs up. If he were to announce that Tesla, SpaceX, or one of his operations were establishing a presence here, might that be the catalyst to unleash the kind of recovery we’re all hoping for?
00:06:36:23 – 00:07:04:11
Magnus Heystek:
You know, it’s quite fascinating to watch how Musk has grown over the last couple of years in stature as a global businessman, capitalist, venture capitalist, and now almost as a semi-influencer on the world stage. I mean, that in itself is a phenomenal story, where leaders of countries go to him, almost begging for his blessing.
00:07:04:13 – 00:07:30:07
Magnus Heystek:
And I think if he comes out and says, “Guys, I’m doing a deal with South Africa, I’m investing in South Africa under these conditions,” that would be quite startling. The whole world would be forced to take note and say, “What is it that Elon is seeing that we’re not seeing?” That slow realization might lead people to reconsider South Africa, to start chatting with people on the ground, and look at some opportunities that might be developing.
00:07:30:09 – 00:07:53:04
Magnus Heystek:
Because, my friend, a lot of people have written off South Africa. But if Musk shows interest, they might say, “Let’s relook at this.” But let me say again, there’s a lot of work to be done. The damage has been immense—the railroads, the ports, the electricity grid, all of it needs fixing.
00:07:53:06 – 00:08:21:17
Magnus Heystek:
The government wants to push through tariff increases, which are problematic. So, let’s not kid ourselves—the damage was enormous. We haven’t fully acknowledged just how bad things were. Two years ago, we were literally peering into the abyss in terms of our financial trajectory.
00:08:21:17 – 00:08:48:12
Magnus Heystek:
For those who were warning about the path we were taking, they were correct. We came very close to a debt default, and further economic collapse, but that has been averted. Let’s hope and pray that this recovery continues. For 12 years, I’ve been telling people, “You have to get your money out of the country as soon as possible.” That advice has generally been sound, but I think the urgency to move money out has dissipated somewhat. There are still reasons to externalize, but the “get out of Dodge” approach is no longer as pressing, and our local funds are doing exceptionally well. Long may it last.
00:09:13:16 – 00:09:41:19
Alec Hogg:
We had a conversation yesterday with some friends, where the point was made that during the last big commodity boom after 2008, South Africa did extraordinarily well because we had Eskom that was working and we had Transnet that was functioning. But the last two commodity booms, subsequent to that, have passed this country by because Eskom wasn’t working, and it couldn’t get the product to the ports.
00:09:41:21 – 00:10:04:01
Alec Hogg:
So, I guess that penny has finally dropped. Once things get fixed, it will position the country differently. But I wonder whether it’s going to take too long to fix it in time to benefit from the current cycle. Now, we do seem to be moving into an upward cycle on commodities, especially with China re-stimulating their economy.
00:10:04:06 – 00:10:27:07
Magnus Heystek:
Quite correct. The point you make is very valid. If you study the commodity cycle in South Africa, from 2001 to 2008, it was an immense boom. There was another, shorter boom in 2011, but we could not participate because we couldn’t get enough goods to the harbors and onto ships while prices were very high.
00:10:27:07 – 00:10:52:23
Magnus Heystek:
So we lost out, big time. Now you’ve got China announcing a major stimulus, and I noticed that you’ve been buying Anglo American, which is a smart move. So, there might be a turnaround in the commodity cycle. The question is: will we benefit? Will we be able to get enough coal, iron ore, and manganese to the harbors? Because that’s the infrastructure that needs to be fixed, and fixed very fast, otherwise we’ll miss out again.
00:10:53:00 – 00:11:15:12
Magnus Heystek:
And booms don’t last forever. We’re going to miss another boom. And I think this is now in the hands of the government of national unity. It’s theirs to lose. If they step it up, it will be good. And that’s a good side to be on, but it seems new energy has been injected into the cabinet.
00:11:15:12 – 00:11:26:01
Magnus Heystek:
The DA is shaking the tree in many, many areas, which is welcome news. And again, it’s there for the taking so we can benefit from this.
00:11:26:03 – 00:11:56:14
Alec Hogg:
Going back to another megatrend, there was a period in South Africa’s recent history where anyone who was anyone wanted to invest in Africa, and that is slowly being unwound. We saw Tiger Brands famously losing a billion rand and then having to pull out of Nigeria. Nampak took a hit as well. But today, there was confirmation that the property companies Hyprop and Attacq have now shed their assets.
00:11:56:14 – 00:12:15:16
Alec Hogg:
The shopping centers in Nigeria and Ghana. Do you think anybody’s learned anything from this? It’s almost like a fashion—let’s go and do something, and everybody rushes in, then comes back with their tails between their legs. Forget about it in a few years, then go off and do it again.
00:12:15:18 – 00:12:44:14
Magnus Heystek:
You know, very few South African companies have managed to crack not only Africa, but also the global market. I mean, we know about Woolworths losing a huge amount of money in Australia. The South African companies all went into Africa with great expectations, thinking they could replicate the business model from a so-called African country in the South into an African country in the North.
00:12:44:16 – 00:13:29:02
Magnus Heystek:
I think the odds were just stacked against them. I think you can put an end to that as well. The culture, the language, the way they do business was just totally different. And, you know, I happened to, at one stage, know the CEO of Virgin Airlines in South Africa who was trying to break into the Nigerian market. He would, for instance, tell me that the business operates on a level or in a way totally unknown to South African businesspeople. For example, he would have to fly with a suitcase full of dollars every month to pay the people in cash because you couldn’t trust the banking system.
00:13:29:02 – 00:13:51:16
Magnus Heystek:
Even Richard Branson couldn’t crack the Nigerian market, and they followed suit and left. And I think a lot of South African companies are not explicitly saying why they are pulling back, but I think they encountered the same obstacles—different cultures, different political setups. It just didn’t work.
00:13:51:18 – 00:14:18:20
Alec Hogg:
Yeah, well, when you’re operating there, you’ve got to have your eyes wide open. Another bit of news that came out on the Stock Exchange News Service today was the repurchasing or cancellation, they quoted, of NewGold or some of the NewGold gold and platinum debentures. Now, these are interesting vehicles because there was a time if you wanted to own gold, you had to go and buy Krugerrands.
00:14:19:01 – 00:14:30:21
Alec Hogg:
That was it. Put them in a safe and hope that nobody robbed you. But now you can use these NewGold paper investments. But it’s no longer necessary.
00:14:30:21 – 00:14:31:05
Magnus Heystek:
Yes.
00:14:31:07 – 00:14:42:16
Alec Hogg:
If they’re canceling them, if they’re buying them back, I guess it would indicate that the demand for some of these debentures is now falling.
00:14:42:19 – 00:15:09:11
Magnus Heystek:
Well, are you buying gold now at a record high? I mean, this is nosebleed-high at $2,680. I didn’t think we’d ever get here. And you recall all the doomsayers were saying gold will hit $2,000, $2,500. Maybe the market is not that stupid. They know that it’s had a tremendous rally. I mean, this year has been phenomenal for holders of physical gold or gold derivatives, and maybe they’re holding back.
00:15:09:12 – 00:15:30:01
Magnus Heystek:
You know, these things go in cycles. Maybe the buying has stopped. As we all know, you make your profits when you buy an instrument, not when you sell it. And as usual, people are now rushing to say, “Oh, we missed gold.” I’m saying, I think there are other cheap assets to buy.
Read more: Magnus Heystek: Why I am investing in South Africa again
00:15:30:03 – 00:15:35:04
Magnus Heystek:
So, that could be a sign that the market is coming to a peak.
00:15:35:08 – 00:15:42:05
Alec Hogg:
And are they coming in and asking you if they should buy Bitcoin, given the run it continues to have?
00:15:42:05 – 00:15:48:15
Magnus Heystek:
I think I have a sign on my desk that says, “Do not ask me about Bitcoin.”
00:15:48:17 – 00:15:52:20
Alec Hogg:
Okay, simple enough. It’s moving.
00:15:52:22 – 00:16:11:16
Magnus Heystek
We have, within the company, a lot of younger advisors who like Bitcoin, and they are recommending it to their clients. If I have a client who really wants to invest in Bitcoin, I will point them in the direction of one of our young guys out in Rustenburg.
00:16:11:16 – 00:16:43:11
Magnus Heystek
They will then make a decision based on the various analyses. But I cannot, in my heart, recommend Bitcoin on any fundamental, scientific, or rational basis linked to cycles or other indicators. I don’t know why it’s going up or down. And because of that, I cannot recommend a product that I do not believe in. So, I’m sorry—old school—I just cannot do it.
00:16:48:05 – 00:17:12:15
Alec Hogg
Let’s close off with another topic from the conference. We’ve replicated this in the business portfolio today. Sean Peche was explaining how the equal-weighted S&P 500 exchange-traded fund was outperforming the weighted version, which allocates so much of its portfolio to the Magnificent Seven and others. So, I took it one step further and added the Russell 2000 to the business model portfolio today. Do you think that’s a good call?
00:17:22:04 – 00:17:42:22
Magnus Heystek
It’s not a bad call. One I’ve been looking at, historically, is when interest rates start declining—and it looks like that’s going to happen soon—it’s the small caps and midcaps that benefit the most. We know they’ve been lagging behind the Mega Caps and the Magnificent Seven.
00:17:43:00 – 00:18:06:22
Magnus Heystek
Underneath the market, there are different themes, trends, and cycles. From a valuation perspective, considering a soft landing in the U.S. and further interest rate drops, the Russell 2000 is not a bad place to be. It’s a good place to reallocate. This is what the investment world is about: nothing is static.
00:18:06:22 – 00:18:31:22
Magnus Heystek
When the media starts bragging about the fantastic high returns achieved in the past, that’s usually not the time to rush in. It’s normally the time to be selling because the smart money has already left and is looking for other places to invest. That’s why you need to stay updated—read, read, and read more, like Charlie Munger and Warren Buffett. You have to anticipate future trends.
00:18:31:22 – 00:18:55:05
Magnus Heystek
This reminds me of the beginning of the year when the Rand was at 19.50, and every investment company in South Africa was promoting offshore investments. I made the point, and it’s on record. The Rand is now at 17.50. Fortunately, offshore markets in dollar terms continue to go up. Big money has been made offshore, but don’t expect the same returns now because everybody’s running around saying, “Look what you could have made.”
00:18:55:06 – 00:19:24:05
Magnus Heystek
It’s too late for that. Expect lower returns in Rand terms from offshore investments going forward. The guys who took their money out ten years ago are in a good space. Now? I’m not so sure.
00:19:42:02 – 00:19:53:11
Alec Hogg
That’s what it always reminds us: be greedy when others are fearful, but be fearful when others are greedy. Magnus Heystek from Brenthurst Wealth. I’m Alec Hogg from BizNews.com.
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