Steven Nathan, 10X Investments’ chief executive officer, sees shoots of recovery in the mood among retirement savers in South Africa after the election of Cyril Ramaphosa as President.
What we are seeing on the investment side is more of a willingness for people to retain their investments in South Africa.
What was very concerning from about 2016 onwards – with a combination of the weak rand, State Capture the lack of confidence in the country – was that people were looking far more at having their investments housed outside of South Africa, not wanting to be exposed to the South African economy.
We saw people cashing in their South African investments, including their pension funds and their preservation funds. They were moving those savings abroad because of the lack of faith in the long-term future and investment outlook in South Africa.
People who were retiring were also quite concerned. Retirees were saying they want a substantial proportion of their retirement investments offshore. Or they were actually considering emigrating, so they were looking at taking themselves, their assets and their future spending power out of South Africa.
That was very negative; it was noticeable in 2016 and 2017. But, into 2018, we have seen that reverse, there is much more confidence in South Africa. Fewer people are talking about emigrating, financially or in person. And there has been less demand for international investments in their portfolios.
It is important to understand that there are two issues here: the first is where does your money reside, inside South Africa, or have you taken money offshore through financial emigration or annual allowances. (Annual allowances are very generous these days so people can get substantial amounts of money overseas without emigrating.)
The second issue is that if you look at a South African portfolio, typically half of your money is a rand hedge. Even if you are investing your pension fund in South Africa, typically you will find that 25% sits directly offshore and another 25% is offshore through the JSE. Half the JSE is a rand hedge. The irony for investors is that when the rand weakens because of poor sentiment towards South Africa it is quite good for investments because half their portfolio is a rand hedge.
When the rand is weak the JSE actually does quite well. But that is in the short-term.
Since the election of Ramaphosa the equity market has been a bit weak, it’s been off by about 5%. And for most people, most of their money sits in the equity market. The rand has been quite strong so any offshore money that South Africans have converted from dollars into rand has also gone down.
So, overall, it has been quite negative for South African investors, but it is much more important to look at the long-term. The long-term outlook is that with a more stable political and fiscal environment in South Africa long-term returns should be more attractive.
Business in general is a lot more optimistic about the future for South Africa since the election of President Ramaphosa and Nhlanhla Nene as the new, improved, high quality Finance Minister.
I think the important point is that as a country we were certainly on the low road. The lack of fiscal discipline, the enormous budget deficit was a huge burden on the country and was only getting worse, together with the corruption and all the other political challenges. The consequences of that environment were very negative for retirement savings because very few people want to invest long-term money in a corrupt environment.
Over the last three or four months there has been a dramatic change. That change means we are going to have a far more responsible fiscal environment, far more competent management of our finances, people with integrity in state-owned enterprises.
That is a huge improvement relative to where we were a mere four months ago. That said, we still have enormous challenges as a country and there is a lot of work to do for us to get to where we need to be. DM
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