The lack of creativity and “economic incompetence” displayed by South Africa’s policy makers is the reason why South Africans, looking to grow their investment portfolio and generate wealth, should consider betting largely on offshore markets, says investment heavyweight Magda Wierzycka.
Wierzycka, the founder and executive chair of JSE-listed Sygnia Limited, was speaking at Moneyweb’s Better Investor Conference on Thursday.
She advised investors aiming for wealth generation through long-term investment to not only maximise their offshore exposure in equities, but to also ensure their portfolios are well diversified.
“To be perfectly honest, I don’t see how South African equities represent great, long-term value for investors as it stands at the moment. Unless of course by some miracle, the ANC has a magic wand that will fix all the problems we have – which they don’t,” Wierzycka said.
Should investors want to invest in South Africa, Wierzycka stressed caution, saying this should be kept to a minimum, citing the country’s low economic growth rate, high unemployment, rising inflation, mounting infrastructural challenges and an economically incompetent government as some of the key deterrents.
“In South Africa – given how high our bond yields are and how high they are likely to remain, given the fiscal and economic position – I would split my money between bonds and some of South Africa’s equities,” she added.
It’s not all hopeless
Speaking on a panel with Wierzycka at the conference, First Avenue Investment Management’s CIO Hlelo Giyose took on a more positive perspective regarding South Africa’s investment environment. He said that despite the challenges the country faces, the time to trash South Africa as a viable investment destination has not yet arrived.
Disagreeing with Wierzycka sentiments about the strength of the country’s equities environment, he advocated South Africa’s case, noting that the local market still can contribute to building a portfolio positioned for wealth generation, despite all the things that may seem wrong.
“In no small part, this has happened because South Africa has commodities that participate in global growth…
“South Africa has phenomenal management companies that are really focused on capital allocation and not building over capacity,” said Giyose.
“Unlike [the] Chinese and Japanese management companies [that] build capacity and over supply the economy with capital – with manufacturing capacity, with industrial capacity – we’re de-industrialising because we’re so focused on getting returns per dollar-per rand invested.” he added.
However, Giyose agreed with Wierzycka that South Africa does hold significant risk – much of it political. Considering this, he acknowledges the role offshore investments continue to play in strengthening one’s portfolio.
“This is especially so given our lethargic economic growth rate.”
Statistics South Africa’s most recent Gross Domestic Product (GDP) figure for the first quarter of 2022 came in slightly higher than economists expected at 1.9%, led mainly by growth in the manufacturing and trade, catering and accommodation industries.
Despite this, most economists – in their annual growth forecasts – anticipate GDP to stay below 2% for 2022. This will be much lower than the 4.9% overall growth reported in 2021, albeit off a low base following the Covid-19 fallout in 2020.
“South Africa is only about 0.8%, maybe less, of global GDP and that’s shrinking. South Africa’s financial assets are about 2% or less of global financial assets and that too is shrinking while other countries are getting bigger,” Giyose noted.
“So, when you’re an investor and you’re looking to parlay your investments or your capital or savings globally, be very mindful of the fact that there’s greater opportunity in the world,” he conceded.
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