Magnus Heystek on the JSE and why you’ve suffered financial wipe-out

Magnus Heystek, a journalist who started his own investment advice company, Brenthurst Wealth Management, has boldly been one of the most high-profile investment advisors who have recommended offshore diversification. Heystek has been very vocal about just how wrong it has been to keep all your money in South African assets, in particular Johannesburg stocks. In this comprehensive article, he arms himself with an abundance of data to bring home the point that ‘the decade 2010 to 2020 was, by almost any measure, a financial disaster’. – Nadya Swart

Wipe out! Why you are 25% poorer in dollar terms.

By Magnus Heystek*

It’s been a while – OK, a very long while – since I dared get onto a surfboard and try catching a giant wave to take me all the way to the shallow waters. I was never a good surfer and more often than not, I experienced a wipe-out of gigantic proportions, with more water and sand up my facial orifices than is considered healthy.

Most South Africans – from the very rich to the middle-class – have over the past decade to 2020 suffered a financial wipe-out of almost unprecedented proportions.

Perhaps we should be playing that one-hit wonder by the 60’s- band The Surfaris, called Wipe Out, which features one of the most popular drum features in history. Go and search for it on You Tube or Spotify and see what I mean.

As financial data from various levels of society and the economy gets number-crunched and analysed, it’s clear that the decade 2010 to 2020 was, by almost any measure, a financial disaster. Not even during the financial lockdown of SA by the international community during the State of Emergency in the mid-80’s under the rule of PW Botha, did the country as a whole see so much personal wealth evaporate.

The effect of such a dramatic collapse in personal wealth will be long-lasting. Purveyors of luxury goods beware.

In USD terms the average South Africans lost about 25% of their aggregate wealth in this period, even some of the very rich, according to the latest wealth survey done by New World Wealth.

Unless you had 100% of your assets in private wealth invested in US dollars or Euro’s, you’ve experienced a very sharp and probably permanent loss of – on average – a quarter of your global wealth.

Unless there is a dramatic change in the current wealth trajectory in SA—will this gradual wipe-out become permanent. This fact is already evident in the long-term decline in a range of dollar-sourced consumer goods which are increasingly unaffordable to a greater number of South Africans. Think new motor cars, cell phones/laptops/medical equipment/medical treatment, just for starters. Sales of new motor cars as an example are down to levels achieved 12 years or so ago. Despite record-low interest rates, fewer and fewer South Africans can afford to buy new cars.

Also, don’t expect foreign travel to recover to pre-Covid19-levels. The disposable income of most South Africans, even the very rich have been severely impacted by the sharpest decline in GDP (-7%) in over a 100 years during 2020.

Every year Mauritian Bank Afrasia in conjunction with local research-house New World Wealth (NWW) publishes an annual survey on wealth creation on the African continent, adding up (how I don’t fully know) all the so-called dollar millionaires in each African country. Each year it makes projections or forecasts as to how many millionaires (people with net assets in excess of $1m) are likely to be added in the coming year or decade.

South Africa always featured as the country with the most dollar-millionaires on the African continent.

This year, in a somewhat diversion from the past, it focused its analysis on how many millionaires have been obliterated by the wealth-destruction experienced in SA over the past decade. In 2020 SA lost 1 900 millionaires in one year alone, to bring the number down to an estimated 36 500. This number is down an astonishing almost 8 000 millionaires in less than 10 years.

While an estimated 4 200 millionaires have emigrated during this time, the balance of the former millionaires have been dragged back into the lower leagues of middle-class existence as a result of the following factors:

  • The decline in the ZAR against the USD from R6,80 to around R14,70 when the survey was done.
  • The poor performance of the JSE over this period, recording a -12% decline in USD terms.
  • The poor performance of the SA residential property market, which houses a great deal of SA personal wealth. According to figures from FNB and Global Property, SA’s residential property market was up 57% in nominal terms but down 19% in real terms over this period of time. In USD terms average residential property prices have declined by about 60% as a result of (a) no real growth in ZAR terms and (b) a 50% decline in currency.
  • Many former successful companies have gone into liquidation due to poor economic growth, declining profitability and other factors cited, such as Eskom’s lack of a predictable electricity supply.

While NWW does not mention it specifically in their report, can one add the collapse in values in the listed property space where a great number of local investors showed massive paper profits as recently as 3 years ago, before the meltdown ensued.

JSE returns 2010-2020

In USD terms an investment in the JSE in 2010 was a very poor decision. NWW refers to a loss of  12% for an offshore investor who invested capital into the JSE ten years ago. Since the survey was done (my guess mid -2020) the rand has strengthened somewhat, bringing the return up to zero in USD terms.

No wonder foreign investors have been fleeing the JSE for well over 5 years now, with an estimated R550bn flowing it of the equity market alone during this period. This outflow has not abated and so far this year the sales of JSE equities by foreigners amounts to R27 billion, despite the sharp uplift in equity values from October onwards.

It would appear as if foreigners are using the rise in values to take profits, leaving the buying to local institutions who                    are obliged to invest locally due to foreign exchange controls.

The JSE in Rands and cents 

It’s fair to say that most investors get confused and bewildered when analysts and journalists talk in percentage terms when it comes to investment returns.

To get around this I got the number- crunchers at Brenthurst Wealth to do the 5, 10 and 15 year return-numbers for an hypothetical investment of R100 000 for each of those three periods and for each of three indices chosen, being the JSE AlSI, the Morgan Stanley Capital World Index (MSCI-World) and  S&P 500, the broadest gauge for the US market. In short, the JSE was an absolute laggard over all three periods and by a substantial margin.

Even I was shocked when I saw the difference in rands and cents over 5, 10 and 15 years respectively.

See here for yourself.

Returns over 5 Years:


Returns over 10 Years:


Returns over 15 Years:


It’s clear local investors who steadfastly stuck to the “local is lekker”-advisors and fund managers have suffered a substantial decline in the purchasing power of their investments. These numbers, which you probably will never see published in most mainstream media, show how little investors have to show for their loyalty to the JSE.

I’ve come across well-known brand name retail funds that have earned their investors zero return over 5 years after all costs and fees. Yet these non-performing companies keep on spending millions of rands annually in an attempt to lull their investors into complacency and poverty. And the hosts of these radio shows will never interrogate the sponsoring company on its poor performance, lest it loose the valuable sponsorship.

In the end it’s the average SA saver, diligently putting away a part of their income every month, who is paying the price of this devious relationship between Big Money and the media.

Not Rand weakness

It’s worth mentioning that while the decline of the rand versus the US dollar had a major impact over 15 and 10 years, it had NO impact on the difference in returns over the 5-year period. Despite the volatility at times of the local currency, was the rand actually stronger at the end of 2020 than 5 years before.

The difference in the outcome, therefore, has to be found elsewhere and, according to Brenthurst consulting economist  Mike Schussler it is to be found in the real decline in GDP per capita and sharp drop in profitability of many listed companies from 2010 onwards.



These two graphs graphically illustrates the wealth-trajectory for the country as a whole. These numbers are influenced by population rapid population growth and unemployment, but it provides the macro-economic environment to the poor performance of the JSE relative to global and country-specific indices. Commentators and fund managers have for years been trying to spin the story that the JSE provides enough offshore exposure, via its dual -listed companies earning offshore earnings. These above return numbers clearly puts that argument to bed.

This does not augur well for future returns, despite the nice uptick in the commodity cycle over the past 6 months.

Analysts and fund managers were very quick to hail the return of the commodity “super -cycle”, but SA has missed the bus as far as the previous commodity boom (2011-2015) was concerned and more likely than not, going to be wholly partially missing the current one, if indeed it is a super-cycle.

Neil Froneman, CEO of Sibanye-Stillwater is on the record as saying we may be in a super-cycle, but in the same article says he won’t invest any new money in opening mines in this country. Why not? It’s a regulatory nightmare filled with BEE-requirements, corruption , collapsing infra-structure and militant labour.

Exchange controls and Regulation 28

There is another reason why your rand returns on the JSE have lagged world markets, two issues I frequently raise in order to make investors and the public aware of them.

I have long been writing and warning about the poor returns of SA’s retirement funds, which includes pension/provident funds, retirement annuities and preservation funds. Due to Regulation 28 fund managers can only invest 30% of their total portfolios into offshore markets.

The result is that SA savers/investors are forced to invest in one of the weakest equity markets with a declining currency to boot.

I spent some time crawling the websites of SA’s large insurance companies this week which was quite a revelation. Very few companies publish returns for their various retirement funds longer than 5 years and those who did, reveal an almost total non-performance of the various Reg28 portfolios on offer. Some funds showed zero returns over  5 years.

At best investors/members of retirement funds have been getting back their contributions with minimal growth.

In our practice we daily calculate the 5-7 year returns for members of RA and preservation funds, and its alarming to see how many investors have not achieved any growth in real terms over the past 5 years and more.

That ladies and gentlemen, is your “care-free”retirement going down the drain.

Yet, from time to time, various pension fund managers, boldly claim that Reg28 offers enough offshore exposure and that investors need to worry.

John Anderson from Alexander Forbes was recently quoted in Citywire said that “ on the whole, Regulation 28 of the Pension Funds Act provided most South Africans with sufficient flexibility. ‘Regulation 28 has kept pace with regulations and developments globally. The maximum percentage that local pension funds can invest offshore has increased from 5% in 1996 to 30%. The African allowance means pension funds can invest a further 10% of their fund money into Africa.’Anderson added that Alexander Forbes did not expect the government to increase Regulation 28’s offshore allowance soon.

Looking at the outcomes for most pension fund members over the past 10-15 years, I would suggest that Anderson is engaging in a bit of  cunning sophistry to appease his masters at Treasury.

I’ve always suggested that its career-limiting to criticise Reg 28 publicly, as Treasury (and hence the finance ministry) are not fond of being criticised.

There are many parts of the world – Australia, for instance – where individual members of retirement funds have absolute freedom what to put into their pension funds. I am starting to believe that the current arrangement between government and the large pension funds is a very nice cozy one.

More worrying is the fact that SA’s mainstream media and financial websites is too scared to tackle this issue for fear of losing advertising income.

The net result is a whole generation of SA savers that have not experienced inflation-beating growth for over 15 years now.

Members of RA funds and preservation, older than 55, have the option of cashing out their funds in various formats, depending on the investment product, either wholly or in a restricted format.

One way – which I’ve written about many times – it to cash out your RA by withdrawing the one-third (cash free up to R500,000) and reinvesting the 2/3rds in a living annuity where it is not subject the restrictions of Reg28. This has been a great strategy which, I am pleased to say, I have used with my own RA’s and the outcomes have been spectacular. I have in the short space of time doubled my retirement capital (due to it being 100% offshore) which also means my income draws have doubled over the same time.

But this option is now been threatened by a technicality linked to exchange controls imposed on the life licences of the insurance companies who offer living annuities: they may not exceed 30% of total assets with their foreign exposure.

Until recently most asset managers/life companies have been able to offer 100% offshore exposure, but due to massive flows into offshore equities, have these limits now been reached at most companies. Allan Gray has limited its offshore exposure to 60% for some time, while Sygnia has reduced their exposure to 30% and more recently investment giant Ninety One have also reduced offshore capacity to 60% of living annuity portfolios.

Both companies have expressed the view that this restriction is merely a short-term issue. Other companies such as Momentum still have substantial capacity, I am told.

While the JSE is currently doing well since October 2020 on the back of a global commodity boom will the offshore restrictions again start impacting if and when the rand starts weakening again.

It’s not called a commodity “cycle” for nothing as this sector is known to be very volatile and difficult to predict how long it will last. The best times to get offshore exposure in your portfolio is when the rand is strong, not when it is busy collapsing.

That brings me to asset allocation.

If (a) the outlook for the rand and the residential property market remains negative and (b) you are only limited to 30%offshore exposure within your retirement funds, what should the asset allocation be of any discretionary investments you still make?

It should be 100% in my view.

Any and all extra cash you have – in addition to your cash reserves for emergency purposes – should be 100% invested into asset swap funds or even better still directly offshore making use of your annual foreign investment allowance. Once offshore you can invest in some of the best investment funds in the world, such as Fundsmith, Baylie Giiford, Vanguard and Black Rock, to name just a few. And at much lower costs.

But local fund managers won’t like this advice, will they? I wonder why.

  • Magnus Heystek is investment strategist at Brenthurst Wealth. Voted Top Boutique Wealth Manager in 2017 and 2020.

Read also:

(Visited 21,548 times, 5 visits today)