• An holistic view

    By January 27, 2020Uncategorized

    Looking at the size of various economies in the world, we once again have to remind ourselves that South Africa is relatively unimportant. But, as SA residents, we do feel that we should invest here – even though we are not forced to do so as before. The relaxation of exchange control regulations allows every person over 18 years to invest up to R1 million internationally without much hassle every year; and if you obtain approval from SARS you can take R10 million offshore annually.

    The question that remains, therefore, is where to invest? If we compare just the USA and South Africa, these are the considerations:

    The US remains the biggest economy in the world and is currently an extremely prosperous area; with good GDP growth, low inflation, low unemployment, and most importantly, being a forerunner in innovation. As an investor 50 years ago, you had to look at big industrial companies such as those in mining, oil, agriculture, and so forth. Commodity-rich countries like South Africa benefited from the stellar growth in China, while not much was happening around information technology yet. The US went through a horrendous period from 2000 until 2009 and lost 33% of its manufacturing jobs, so as an investor you got nothing. Then some ten years ago the information technology boom started and we saw the rise of the smartphone, internet, nanotechnology, electric cars, self-driving cars and biotechnology. Companies like Apple, Amazon, Google, Tesla, Amgen, Illumina, Facebook and many more burst onto the scene.

    As an investor you would have been left out in the cold if you were not invested in the US during these years and going forward you will not be a shareholder in the future world if you are not. The problem is that a lot of these well-established companies are very expensive and buying into them now might be the wrong thing to do. What is important to understand is that new companies in innovation are being formed in the US on a daily basis and you have to fish in that pond if you want to be relevant as an investor over the next decade.

    Investing in South Africa is almost the complete opposite of investing in the US. During the 2000s you made a lot of money investing in SA, but unfortunately two things happened. The first was that government implemented a policy dictating that people be employed based on race and not on merit. This caused the emigration of millions of highly educated, tax-paying individuals and 25 years later the chickens of maladministration have come home to roost. The second was that former President Zuma placed all his equally corrupt friends in positions of power and with the help of the Guptas managed to pillage the state coffers over the last decade.

    So, we currently have only one company in SA, Naspers, that can be counted as a global leader in the future world of high tech. But, perversely, because we are heading for failed-state status, there are loads of cheap companies to buy.

    To summarize therefore: in the US you can invest in a powerhouse that is literally building our future world, but such investments are expensive. In SA, you can get lots of shares at a bargain price, but we are a stone’s throw away from having a collapsing economy and becoming completely irrelevant. With all that in mind, we think it is important to have a significant portion of your longer-term investments outside the SA market. But, because we are eternal optimists, we do believe there is still a sliver of hope for sanity to prevail in our country and then we will see our SA companies performing well.