3 April 2007
Investing in South African equities is “a paying proposition by a huge margin,” says a local unit trust marketer, but South Africans seem to be missing the boat.
Stanlib, the country’s largest unit trust marketer, says not enough South Africans think domestic investments pay off, leading to locals missing out on lucrative investment opportunities, and never more so than in the past three years.
Foreigners, says Paul Hansen, Stanlib’s director of retail investing, have been quick to seize these opportunities at the expense of less confident locals.
Stanlib’s figures indicate that in the first eight weeks of 2007 alone, foreigners accumulated a net R20-billion in South African shares, while in the three years to the end of 2006, foreign buyers acquired R155-billion in JSE stock.
Over this period – a strong equity bull run, despite the 18% market dip in June 2006 – foreigners saw continued value in the JSE and used short-term corrections as buying opportunities.
Total returns on the JSE’s All-Share Index, including dividends, are up 281% since April 2003.
“It has to be a concern that in the last three years and two months our own people have tossed away R175-billion in JSE shares, willingly selling them to foreigners in the middle of one of our great bull markets and during one of our best periods of economic growth,” Hansen told BuaNews recently.
“In effect, local equity investors have been selling South Africa short at a time when there is no justification for it.”
According to Hansen, recent history shows that a strategy of “buy and hold” by South African investors would have made much more sense.
Too close to see the big picture?
Hansen believes South Africans fail to spot positives because they are too close to day-by-day negatives.
“Take a situation like regular power failures,” he said. “For a South African, this is proof of shortcomings by the authorities and poor planning. For a foreigner, the power failures confirm that the economy is growing faster than even the most optimistic national planners expected.
“The fact that the country’s power grid can’t keep up with huge increases in demand is a sign of success; that our economy is going like a train and that confident consumers are pumping new-found wealth into household appliances and new homes.
“Foreigners see indicators like this and draw positive conclusions,” Hansen said. “We see the same indicators but fail to spot the silver lining.”
According to the Department of Trade and Industry, there are many lucrative possibilities arising from South Africa’s wealth of natural resources and almost unlimited export and import opportunities.
In terms of mineral resources alone, the country has 80% of the world’s reserves of manganese ore, 88% of platinum group mineral reserves, 45% of global gold reserves and 73% of the world’s chromium reserves.
At the same time, foreign buying tends to be spread across various sectors – nor is it linked solely to the government’s infrastructure spending and 2010 Fifa World Cup South Africa initiatives. South Africa’s retail and banking sectors have also benefited from offshore interest.
“Black entrants to the South African middle class grew by 421 000 or 30% in 2005,” Hansen notes.
“This is part of the big, positive story that is currently unfolding in this country and one of the reasons why foreigners have bought billions in equity in South Africa Incorporated.
“A broader perspective pays off. Perhaps it’s time we South Africans took a step back and looked at the big picture.”