The next 100 years on the JSE won’t be like the last 100

A recent study published by Credit Suisse Group AG and the London Business School has gained a lot of interest in South Africa. The research compared market returns across the world over the past 117 years in US dollars, and found that over this time the top-performing equity market was the JSE.

Since 1990, the study found, the best equity markets outside of the US were to be found in commodity-rich nations like South Africa, Australia and Canada. As the graph below shows, these performed well ahead of the world average.

Local investors must however be very cautious about seeing this as proof that there is no better place to put their money that in local stocks. As always, the great investing caveat applies: past returns are not an indication of future performance.

For a start, South Africa is no longer the dominant player in global commodity markets that it used to be. In 1970 South Africa produced two thirds of the world’s gold. Today, it accounts for around 5%.

Apart from platinum, this country is no longer a leading producer of any major metals, although it does account for around half of the world’s chromium. The local mining industry, in any terms, is a shadow of its former self.

More than that, however, the world has changed significantly since 1990. Economic growth over the next 100 years is unlikely to be premised on natural resources in the same way it was in the twentieth century.

The commodities valued by the world today are technology and information. And unfortunately, South Africa does not currently look like a place that is setting its economy on a path that will take advantage of those areas.

One therefore has to ask what is going to attract investment into South Africa on a large scale. How is the country going to convince foreigners in particular to send their money here rather than anywhere else?

The reality is that even over the last two decades returns from the JSE have started to lag those of other markets. As Pankie Kellerman, the group CEO of Gryphon points out, including dividends the S&P 500 has outperformed the FTSE/JSE All Share Index (Alsi) by 2.5% per annum since 1994.

As the table below shows, the MSCI World Index, which covers a broad range of developed markets, has also run ahead of the JSE.

Source: Gryphon Asset Management

This, Kellerman suggests, gives a more realistic picture of where South Africa stands.

“And you can add to this recipe one more truth,” he adds. “That JSE returns were mainly driven by offshore investments by listed companies.”

So while South African investors might feel pleased that there was no better place in the world to put their money than the JSE over the last 117 years, there is little at the moment to suggest that that is going to be repeated. Quite simply South Africa has to make its economy more competitive, more inclusive and more inviting to investment.

Failing that, there is little reason for anyone outside of the country to want to put their money in our market. Why would they, when their returns are better on Wall Street?

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