It is what it is

Wow Boks, thanks for a good news weekend! But let’s get back to investments:

One thing we have to remember is that markets are not vindictive. Money quite simply flows from high-risk areas with little potential for growth, to lower-risk areas with a lot of potential for growth. An apt analogy would be where you walk in the Kruger National Park and come across a hungry lion. The lion’s instinct will dictate that it will chase and kill you, not because it has something against you, but merely because it is hungry and you are food.

Over the last five years especially, we have seen the South African equity market perform very poorly. The reason for that is very simply the maladministration of the country by incompetent leaders, exacerbated by their criminal looting of the taxpayers’ money. The situation that this created was very clear to see in the Mid-Term Budget Speech (MTBPS) delivered by Tito Mboweni last Wednesday. South Africa is racing towards a very bad place and the only good thing about the MTBPS was the fact that the Minister of Finance stood up in Parliament and emphatically admitted this.

South Africa is nothing in the greater scheme of the world economy. As the graphic below illustrates, we are negligible. This does not mean that a larger economy would necessarily always produce better returns. Below is a graph taken from a recent Coronation presentation illustrating the 0% return in the US market from 2000 till 2013.

But what we have to take from all this is that at a time where South Africa is heading towards a 70% debt-to-GDP ratio; 10,3 million people are unemployed (that is 38,5% of the population); and government is unwilling to move from populist socialism to capitalism and make the hard choices – we are competing with countries like the US where unemployment is below 4%; GDP growth is heading towards 2%; interest rates are below 2%; and they are leading the world in the 4th industrial revolution company count. So, by comparison, investing in South Africa has become a very risky business.

To reiterate our opening statement, therefore, markets are not emotional. The day will come when South African equities will once again provide a better risk/return ratio than the US. And that is why you do not need to sell your solid SA companies, which are very cheap at the moment, right now. Provided you only need to disinvest from them in ten years’ time. You can hold onto them and even buy some more, but you have to understand that such an investment comes with higher risk and volatility; and that countries such as the US are simply in a better space for investment at the moment

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