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South African investors are usually tuned into local political and economic risks. But what about the less obvious risks? There is a lot of talk about the need to maintain a well-diversified portfolio. Aside from simply picking different companies, industries or countries, investors need a good sense of where underlying returns are coming from and what could affect those returns. They must also ensure their investments are not all highly correlated. Peeling away the layers of the average South African investor’s portfolio reveals that one of the biggest risks we face is exposure to China. The herd of elephants in the room The FTSE/JSE all-share index is highly concentrated, with the top 10 shares making up 56.5% of the index. About 20% of that volume is Naspers.

Naspers, the Allan Gray Equity Fund’s second-largest holding, accounts for 9.4% of the local portion of the fund, significantly less than the index – which should not come as a surprise considering the fund does not ai...

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