EDITORIAL: JSE’s underperformance doesn’t make offshore shares a one-way bet
But the exchange’s recovery has been flattered by Naspers, which is up almost 40%
With the sort of nightmare year that South Africans have had to endure — with the economy set for its biggest GDP drop since the Great Depression — it might surprise some to see that the JSE is headed for a positive year.
During the worst of the sell-off in March and April, it would have taken a brave person to bet on a recovery in local stocks. And many did duly lose out. On Monday, the local bourse was up more than 3% for 2020, not bad all things considered.
But the JSE was far from the most compelling story in markets and it is understandable that savers who have to have the bulk of their assets in SA might feel as if they have lost out, even though that’s not universally true.
A fund tracking the FTSE 100 index in the UK would be down about 13% in sterling, a loss that falls to just more than 5% in local currency terms. But the story would be different with an exposure to the US market through the S&P 500, which has notched up a gain of 14.5%, which translates to a 24% gain in rand.
Stock markets in Europe, having endured Covid-19 and the ever-present potential of a chaotic Brexit, haven’t had a stellar year and the Stoxx Europe 600 index has fallen just more than 5% in 2020. But in rand, it’s up about 11%.
With the exception of the UK, it would have paid more to be in these markets rather than the JSE, whose recovery is also flattered by the performance of Naspers, up almost 40%.
With valuations in big developed markets at levels that are historically stretched causing a degree of unease among some international investors due to prices that have a distant relationship with the real economy and prospective earnings, those in SA can’t be blamed for looking at it all with envy.
Progress in the development of Covid-19 vaccines may well see the gains in global stocks carry on, supported by a view that a return to normal life will fire up pent-up demand and boost spending. For example, the Bank of England’s chief economist, Andrew Haldane, was quoted as saying that British families had accumulated £100bn (R2-trillion) of “excess savings” during the lockdowns, an amount that will presumably be spent when they can again go out to restaurants, pubs and shopping malls.
So it is within this context that the debate about the investment freedoms of South Africans is heating up after the issuance, and then withdrawal, of the central bank circular that some in the markets interpreted as removing prudential rules that limit the portion of funds that savers can invest offshore. The Reserve Bank has argued that this was never the intention and has taken responsibility for the information mishap.
And players in the market who would benefit most from selling such exchange-traded products have cried foul and accused their rivals — who often say they support the removal of exchange controls — of regulatory capture to protect their own turf. It is right that the regulators, who have a duty to set rules in a way that seeks to ensure that people are financially independent in retirement, reacted strongly to this implied attack on their independence.
And it's also a good thing that the process is now subject to a period of public consultation. As the examples above show, there are obvious benefits to having a portfolio that is diversified and can take advantage of growth elsewhere, especially with a perennially weak currency.
But many an investor has been burnt after being sold the idea that SA — and the currency — is a one-way bet. Greater freedom and opportunity for increased diversification, and access to cheaper investment instruments, which ultimately mean people keep more of their money for retirement rather than handing it out to fund managers, would be welcome.
But it should, in as far as regulation can guarantee anything, not be at the expense of savers falling victim to the latest fad, with implications for the economic wellbeing of the whole country.
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