Download Should you be

21 Rands and sense
Should
you be
investing
locally?
By Philip Bradford, Head of Investments,
Sasfin Wealth
30 years ago two rand was worth approximately one US dollar.
Currently to buy one US dollar, you need around R13.50. This
means that if you had invested R100 000 into US dollars 30
years ago it would now be worth about R675 000; a gain of
575%!
So in hindsight it was an obvious decision to take all of your
money out of South Africa. Or was it?
Unfortunately, as with most things in life, it is not that simple.
The above calculation ignores the “8th wonder of the world”,
compound interest. In fact, when including the interest in the
two currencies the US dollar cash investment would now be
worth R1 822 000 while the rand cash investment would be
worth R2 530 000.
So am I trying to suggest that you should keep all your money
in South Africa? Definitely not. In fact the above scenario looks
very different over the last 5 years where, because of sharp
depreciation of the Rand, a simple investment in UD$ cash
would have returned 88.6%!
Therefore when someone makes such an important decision
with their life savings, it is important to consider the facts:
“Africa is not for sissies”
From a risk perspective it doesn’t make sense to leave
all your wealth in one country, even if it doesn’t have the
political and economic volatility that we experience. The
only necessary certainty in investing is diversification. It has
nothing to do with patriotism; it is simply prudent to diversify
across a variety of investments, currencies, companies and
countries.
“The world is your oyster”
When it comes to investing in shares, why limit yourself to one
local company if you could rather buy shares in some of the best
companies in the world? The world is filled with opportunities and
investors are now able to easily invest in a large variety of investments
across the globe. This is particularly true of stock markets where it is
now easy for our clients to access the biggest and best companies
in the world from one account. In the past if you wanted to invest in
oil, luxury goods and beverages you could only really buy Sasol,
Richemont and SABMiller. Now you can also consider alternatives like
Shell, LVMH (Louis Vuitton - Moët Hennessy) or Diageo. These global
leaders are not only accessible, but are often cheaper than local
alternatives.
There are also industries and related companies that are not available
in South Africa. Companies such as Google, Amazon, Microsoft and
Apple don’t have peers on the JSE. These are some of the most
valuable companies in the world and should be considered by any
investor.
In addition, the companies that are listed on the JSE are ever
more expanding their operations internationally. It is estimated that
more than 70% of the earnings of companies listed on the JSE are
international. This means that even a “local” investment on the JSE is
mostly “offshore”.
Home town advantage
There is, however, one advantage that South Africa has over first
world countries which is ironically as a result of our relatively high
inflation and political and economic uncertainty: high interest
rates. Swiss investors that earn negative interest on their cash are
envious of our local bond interest rates of over 8%.
Local listed property companies can also offer good yields and
better growth compared to foreign property equivalents. This is
mainly because the local lease increments are linked to inflation
which is much higher
than in the developed
markets. Therefore,
carefully-selected local
property companies
can offer very attractive
yields.
In conclusion, it makes
sense for South Africa
investors to invest a
portion of their assets
in local bonds and
property when income
is required, where
returns of over 10%
are currently possible.
However, when looking
for capital growth they
should investing in the
best companies and
industries in the world.
Philip Bradford, Head of Investments,
Sasfin Wealth