EDINBURGH — The ANC ejected Jacob Zuma from his seat after years of misrule, but the damage the corrupt president left behind is immense. As investment strategist Magnus Heystek and his team at Brenthurst Wealth Management note, a staggering R400bn has left South Africa’s bond and stock market since the start of Zuma’s ruinous reign. Although Cyril Ramaphosa has been making more positive noises in his role as president, the money has continued to drain out of South Africa. October saw the largest outflow since the dark days of apartheid. This trend is expected to continue, with rising interest rates set to make Johannesburg-listed stocks even less attractive. – Jackie Cameron
By Brenthurst Wealth Management
The misrule of the country under Jacob Zuma since 2009, when he was elected as president until he was fired in February 2018, has left behind a shattered economy, a sharply weakened rand and a massive outflow of foreign capital. In fact, since 2014 an estimated R400bn has left the country’s bond and stock market, resulting partly in the massive under-performance when compared to the rest of the world.
It remains a mystery why this massive outflow has not received more prominence in the media, but is one of the financial indicators we follow most at Brenthurst when deciding on investment recommendations and asset allocations.
Outflows have been consistent since the beginning of 2014 and with the exception of a couple of months of positive inflows surrounding the ascendency of Cyril Ramaphosa as head of the ANC in December 2017 and for two months thereafter, massive amounts of foreign money been flowing out of the JSE and bond market.
In October this year another R8bn left our shores, the largest outflow of money since the dark days of international sanctions in the mid-80’s. This also explains the dramatic collapse of average values of shares on the JSE year to date. As at 13th November the JSE was down 18%, one of its worst performances in many years.
We do not foresee a turnaround in the fortunes on the JSE until such time as this massive outflows of foreign capital slows down or reverses. Foreign investors have been unnerved by the government’s handling of its finances and the finance portfolio, with seven ministers of finance in 8 years. This does not augur well for policy certainty and long term confidence in the economy.
The JSE has also been dragged down by the sharp decline in the share price of its largest company Naspers, which is down almost 33% from its peak of R4,000 per share to levels around R2,600 earlier this week.
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It has been suggested for several years now that the massive share appreciation of Naspers, which at its peak earlier this year made up 22% of the market capitalisation of the JSE, has been disguising the poor performance of large sectors of the JSE, especially companies greatly exposed to the SA economy. This has now come true and the mid-cap and small cap shares have lost between 30 and 50% in many cases.
Yet at investment presentation after presentation local fund managers try to make a case for greater investment onto the JSE. We have resisted this urging as our research does not support this view.
SA companies are under enormous pressure to make profits as a result of the weak economy (the only OECD-country currently in a recession), volatile labour relations, rising electricity costs and regulatory uncertainty in several key sectors of the economy.
Developments on the global front also don’t help. This year has been characterised by a rising US dollar, buoyed by rising US interest rates, which has led to a massive sell-off in emerging markets, including South Africa. Interest rates in SA are set to start rising soon and stock markets normally don’t do well when interest rates start creeping higher. Another reason to remain underweight SA shares.
The end result is that over the past ten, seven, five, three and one years, foreign investments have substantially outperformed the local stock market. SA investors who did not increase offshore investments during this time have suffered a severe reduction in their personal global wealth.
