The previous two this century were short, sharp and brutal, followed by equally sharp corrections. The crashes were bloodcurdling stuff which made media headlines and caused massive dislocations in investment and currency markets in both directions. This made it almost impossible to formulate appropriate currency strategies for corporations, governments, parastatals and individuals.
The first crash, from about mid-2001 to February 2002 when the rand plunged to its record low of R13.85 against the dollar from about R6, was on the back of the Argentina crisis. Universal consensus was the rand was heading to R20 to the dollar.
However, the rand turned around and stampeded all the way back to R5.50 to the US dollar. South African private investors rushed into global markets at the low of the rand at precisely the time foreign offshore markets peaked. The end-result was massive losses.
The same happened in the 2008 financial crisis. Global liquidity dried up and headed straight back to New York, but their zero-interest rate policies forced global capital on a three-year global search for yield in places such as SA and other emerging markets.
The rand bottomed out against the US dollar (USD), British pound and the euro in June/July 2011 when the commodity cycle imploded. On cue, as gold, platinum and other commodity prices headed south, so too did the rand.
Since then it’s been four years of small, relentless declines. A death by thousand cuts, deadly to the purchasing power of SA companies and individuals. Against the USD, the rand is now down 81% over four years, down 73% against the pound and 43% against the euro.
A comparison of JSE returns tells a sobering story. Over four years the JSE returned 84.5%, including capital growth plus dividends. Nothing to be sneezed at. But compared rand-for-rand with similar investments in other regions of the world, the returns tell a different story. Asia (Ex-Japan) returned 97.6%, the FTSE All Share returned 136.8%, the MSCI World Index 147.6% and the S&P 500 205.4% – more than double the returns of the local market. Biotech over the same period is up more than 500%.
Time for lunch
So if your adviser has been urging you to take some money offshore over the past four years, take them to lunch tomorrow. It’s been by far the best asset-allocation choice that could have been made. The JSE – with the exception of gold and resources – has beaten inflation handsomely over this period of time, but it hides under-performance against its global peers.
Friday: Is it still time to take my money offshore?