South Africa’s new Expropriation Without Compensation law has been making headlines for the past three weeks. Investment strategist Magnus Heystek of Brenthurst Wealth Management has been polling reaction to statements made by capitalist billionaire Rob Hersov and others. “I’m more inclined to agree with what Rob is saying. If the ANC doesn’t change its strategy…we will be left with a hollowed-out economy that cannot provide growth and jobs for a very, very large number of unemployed people.” Heystek’s says 70% of his company’s clients has already externalised most of their assets or liquid assets into other jurisdictions and into other asset classes. “However, we have been extremely, extremely busy with new clients suddenly realising that the positioning that we have taken over the last 10 to 12 years has been accurate…And the instruction from clients is simply: here it is, take it out. No questions, no arguments, just get it out of the country. Now that in itself is a danger. If that is multiplied by a 10 or 100 or 1000 companies who do what we do, that means there’s a heck of a lot of money going to leave the country.”
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Edited transcript of the interview ___STEADY_PAYWALL___
Chris Steyn (00:01.464)
South Africa’s new Expropriation Without Compensation law has been making headlines for the past three weeks. We speak to investment strategist, Magnus Heystek of Brenthurst Wealth Management. Welcome, Magnus.
Magnus Heystek (00:15.349)
Yes, good morning Chris and welcome to the viewers.
Chris Steyn (00:19.074)
Before I ask you how panicked your clients are and what advice you’re giving them, I want to go to a question you post on X. Reading, Rob Hersov says the country will collapse in five years. Old Mutual Chief Economist Johann Els says it will boom. Who do you believe? Now you’ve had hundreds of responses, but I would like to know who you believe.
Magnus Heystek (00:45.421)
Well, that was a, it was a cheeky little Tweets just to see the reaction, because that’s what both people said on the same day. It just shows you the wider versions of opinions in this country. And right now the emotions are very raw and people are up in arms about so many things. It’s not only EWC, it’s also the Trump issue and that suddenly the BEE laws are being put into the spotlight, South Africa’s position with regards to Israel, et cetera, et cetera.
So suddenly South Africa found itself in the centre of the world. And it’s not only an internal sort of discussion and heated discussion. We had the most powerful man in the world pointing his finger at South Africans saying, I don’t like that and you’d better change. And boom, the rhetoric has just exploded.
So, I thought let’s just test these opinions and see what people feel. Now obviously, Old Mutual has got something to defend. They’ve got to defend their big business in South Africa and the assets that they manage and they’ve been doing that for a very, very long time. But the last couple of years, they kind of got quite panicky because the local markets have not been doing well. Money is flowing out of the country; especially well-informed, sophisticated investors are taking their money not only from Old Mutual but from Sanlam, from Coronation, Allan Gray, and moving their money offshore. And that’s been happening on a very big scale the last 10 years or so. So Old Mutual’s got a position to defend. They don’t want people to do that.
Rob Hersov, as he’s been doing for a number of years now, has come in from a totally different side and said, guys, open up your eyes: If the ANC continues with its destructive policies, the end result will not be very good.
Now, between these extreme polls, somewhere lies the truth. I don’t know where that is. I have my views and I’m more inclined to agree with what Rob is saying. If the ANC doesn’t change its strategy with regards to the economy and the management of the economy…
Magnus Heystek (03:06.29)
…and making minority groups, mostly whites, feel more inclusive, the situation can spiral out of control as more and more money leaves the country, people leave the country, and we will be left with a hollowed-out economy that cannot provide growth and jobs for a very, very large number of unemployed people.
Now that’s what, that’s where we are at the moment and no one really knows. I hope it doesn’t turn out that way. I hope some sanity will prevail and the ANC will realise that, you know, guys, we have to turn this economy around.
But there you have it. Most people have tended to agree with Rob Hersov. And what he is saying? And so there we are.
Now to answer your question about what our clients have been saying or doing or feeling. They’ve been very relaxed. The phones have not rung. We have for a long time said diversification is your only defense against what might happen in South Africa. And one of these mights has always been the introduction of expropriation without compensation. It’s been discussed for many years. The ANC’s political documents for 30, 40, 50 years, in fact, since the Freedom Charter. So we’ve been quite frank and brutal with our clients. We’ve been saying, guys, if you want our advice, we suggest you consider EWC as one of the many risks facing your investments. With the end result that I would say 70% of our clients have externalised most of their assets or liquid assets into other jurisdictions and into other asset classes. So that’s why I’m saying the existing clients have been very calm and relaxed and they’re sending lots of messages and saying thank you.
However, we have been extremely, extremely busy with new clients suddenly realising that the positioning that we have taken over the last 10 to 12 years has been accurate and we’re extremely busy. And the instruction from clients is simply…
Magnus Heystek (05:28.986)
…here it is, take it out. No questions, no arguments, just get it out of the country. Now that in itself is a danger. If that is multiplied by a 10 or 100 or 1000 companies who do what we do, that means there’s a heck of a lot of money going to leave the country. And in itself, that’s a risk.
But it’s a rational risk to what may happen in South Africa where we have seen examples in Zimbabwe, on our borders, Mozambique and Angola to a lesser extent, where as a result of the attacks on minority groups, capital flies out of the door, the shutters come down and your currency collapses and the economy collapses very soon thereafter.
Now, you cannot exclude that and say that will never happen. You cannot say, it definitely will happen. What we have been saying and what I’ve been saying is it could happen. Place your bets, ladies and gentlemen, and place the bets according to your life, your objectives, and your personal fears.
Some of my clients have 100% of their assets abroad, and they live very happily and comfortable in South Africa. A lot of clients have said, no, we still like South Africa. We’re buying property in Hermanus and Cape Town and in Paarl. That’s fine. Property prices there are still rising, but elsewhere in the country, they’ve collapsed. The media has actually stopped writing about how poor the property market is outside of the Western Cape because it’s a horror story. It’s an absolute horror story because you cannot give property away, whether it’s residential, commercial, or block of flats…it unsellable. So in your personal balance sheet, worthless in my opinion.
Chris Steyn (07:33.336)
Now, Magnus, on top of everything that’s been happening, tax increases seem to be on the table as the Minister of Finance seems to be running out of options.
Magnus Heystek (07:44.516)
Well, that’s been coming for a very long time. We’ve been running out of options for a long time. Two years ago…was it last year, the government announced that it’s going to move money from the gold and foreign exchange contingency reserve to fill up the coffers. So that trick has already been pulled.
And you know, the context of that was six months before under some video – and I wrote about it on BizNews – the Governor of the Reserve Bank was asked that question and he very explicitly said such a move of moving money out of the Gold Foreign Exchange account would be disastrous for the country. And six months later, the government did it.
So we’re running out of options and we’re running out of ways to juggle the books behind the scenes, our debt, as Neil de Beer yesterday pointed out. He said our debt is very close to six trillion rand and that’s absolutely correct. At 77% of GDP now, way above what government said it would be. So we’re running into a very, very serious debt problem one of these days, whether it’s now or next year or the year thereafter.
Financial markets tend to sniff this out very early. They follow the financial markets and we will feel the pain in the currency one day when they realise the South African government is in a debt trap and they cannot get out. That possibility is rising year after year after year, it’s getting bigger and bigger and bigger.
It’s quite astounding that the economists from our big banks in South Africa are too scared to express an opinion on this. You have Neil de Beer, who is a politician pointing that out. But the other bank and the asset managers are, as they say in Afrikaans, tjoepstil, they are too scared to rattle the cages. So you have to get your advice or your information elsewhere.
I really, you know, my late friend Mike Schussler was the guy who used to come and ferret out these pieces of information. He’s unfortunately passed away. And you know, but the reality is we are moving towards a debt crisis…
Magnus Heystek (10:07.764)
…and everybody pays the price and the price will be a very, very weak currency if that happens.
Because it’s interesting that the currency at its current levels has been actually very strong or stable over the last five years. I mean, the Rand-dollar exchange rate five years ago was 18.15,19, so the Rand has actually done quite nicely over the past five years, albeit with big moves. But the Rand hasn’t actually collapsed over the last five years…but notwithstanding that, our stock market has done extremely poor relative to what the rest of the world has done.
And I can give you a very shocking statistic. And Sanlam mentioned it the other day when they jokingly referred to saying, well, people will have to work until the age of 80 before they can retire. And everybody thought this was a joke. The reality is absolutely true because most pension funds over the last 10 years…
Magnus Heystek (11:33.899)
…has been like 3 to 4 % per annum. Inflation is 7%, 6%, or whatever you want it to be. So most people’s pensions buy less than it does 10 years ago. Now, that’s a shocking statistic, and that applies to everybody with a pension fund today in South Africa.
Chris Steyn
Thank you. That was Magnus Heystek of Brenthurst Wealth Management speaking to BizNews, and I’m Chris Steyn
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