JOHANNESBURG - As the scrapheap of once great JSE listed companies continues to grow and the economy buckles under government corruption and failed economic policies, local assets are becoming increasingly uninvestable, according to Austen Morris Associates.
“Not that long ago many JSE companies were seen as a port of integrity but that is patently no longer the case,“ said Nick Pitro, a Senior Consultant at Austen Morris Associates, a 25 year-old global, independent wealth manager with representation around the world including Europe, China, across Africa, South Africa and the US.
“In the last year it seems there is barely a week that goes by without a former favourite South African share collapsing in price because of outright fraud, corporate governance failings, corruption or sheer incompetence.
“The private sector seems to be joining government’s corruption party.
“There is clearly a ‘last days of Rome’ vibe on the JSE right now. Many people are trying to make as much money as they can as quickly as they can because they fear things will get worse.”
These are just some of the most noteworthy shares that have ‘exploded’ in the last year or so for various reasons and have undermined investors’ faith in local investments: Steinhoff, EOH, Tongaat Hullett, Group 5, Omnia, Aspen, Mediclinic and Brait. The list goes on.
“Many people don’t realize they may be exposed to these companies via their pension funds, Exchange Traded Funds and Retirement Annuities. JSE shares have certainly lost their appeal such as the breadth of failures we are seeing all the time now.”
This is against a backdrop of a government that is still fixated on taking South African further down the path of economic ruin with policies like Expropriation Without Compensation (EWC), endless taxpayer funded bailouts of State Owned Enterprises, labour laws that increase unemployment and strong socialist leanings.
“Our recent GDP Q1 2019 data showing we are back in recession is a just the latest siren call of where we are headed with failed economic policies. And now that the private sector seems to be joining the party, we have a lethal cocktail for investors.”
Pitro added that South Africans should therefore get as much money offshore as quickly as possible.
“If you live in South African and have a house and pension here, keep them but take as much of your investable money out as you can. Staying invested in local assets is likely to erode your wealth over time.”
Pitro added that he is advising clients to invest in the US stock market for the long run despite its extended bull market. “The US market is not cheap but not very expensive either. And there is little doubt that the many of the world’s best companies are American. They just keep leading the way in innovation and thinking that changes the world.”
In the past five years, the total dollar return on the S&P 500 was 61% versus a loss of 4.7% for the JSE’s Top 40 index in dollar terms. “Of course past returns are no indication of future returns but it is hard to see a spectacular turnaround in South Africa’s fortunes. In fact things may get worse,” said Pitro.
He is also advising clients on property investing in some of the world’s favourite cities like Sydney, London and New York - as well as much more attractively priced ‘second tier’ cities like Berlin, Lisbon and Manchester which are similarly priced to South African properties in prime suburbs and also offer attractive rental yields on hard currency - often in the region of 6 to 7%.
According to Lightstone Property’s Residential Property Indices, national house prices in South Africa rose just 3.4% for the year to April 2019 which remains below inflation. House prices growth in South Africa has remained below inflation for more than a decade now, resulting in a massive loss of wealth for homeowners.