JOHANNESBURG - South Africans are daydreaming their way to a poorer future by keeping too great a portion of their investments in South Africa despite massive underperformance of JSE indices, falling real house prices and a future which looks equally bleak for those trying to grow or even just preserve their wealth.
It's time for South Africans to invest with their heads, not their hearts. We are advising our clients to invest as much of their money as they can elsewhere in the world. We do not see a single reason why people should keep any discretionary investable funds in this country.
People should keep their house and their pension as their only assets here if they live in South Africa. But the rest should be invested in hard currency assets that will protect their buying power, which has already been deeply eroded.
South Africa is now in its longest downward business cycle since the end of World War II and the performance of its assets continues to reflect this unfortunate reality.
The rand has lost a third of its value against the US dollar in the past five years and remains under pressure. Investors in South African equities have lagged developed markets, while house prices have increased at less than half the rate of inflation for several years.
The S&P 500, for example, has delivered a total return of nearly 100percent in the past five years, the Nasdaq 147percent and even the 10-year Treasury bond a return of 12percent. The total return in rand for the South African general equity market over the same period is just nudging 30percent versus a 131percent total return of the MSCI World Index, also in rand. But the South African general equity market return rebased to US dollars is down 13percent. Many popular equity funds are also showing negative dollar returns over five years.
Austen Morris Associates has seen a sharp uptick in the numbers of clients who are worried about the future here and want to protect their wealth for their families.
Despite already being in a recession, South Africa is marching on with plans to expropriate land without compensation, while carrying on with an economic and industrial policy which will only make things worse for the country - potentially leading to further rating downgrades, a bailout and sustained high unemployment.
South Africans are in a "day- dreaming denial" instead of taking hard action.
Much of the advice we see out there does not reflect the reality of South Africa today. For instance, it is a long-held belief that local investors should hold about 30percent of their assets offshore. Some braver souls have advocated for that to be upped to 50percent. But being completely independent, we believe it should be 80percent, perhaps more if practical.
We are banging the table on this one and saying get your money out.
Austen Morris Associate is advising clients to put money in the US despite many predictions that the markets there have run so hard a steep correction is imminent.
The US is the most dynamic, innovative economy in the world. And despite stock price gyrations, for the longer-term investor we think being exposed to many of the world's best companies is a far better play than investing in the JSE.
Ian Edwards is a partner and Africa regional manager of Austen Morris Associates, a 25-year-old global, independent wealth manager.
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