South Africa might be in the midst of a deep mess, with macro-economic data showing we’re at a generational low when it comes to the likes of business confidence indexes, but here’s some weirdly positive news.
According to IOL, from 1900 to last year, the JSE was ” the best-performing [stock exchange] in the world, delivering an average annual return of inflation plus 7,2%”.
Say what?! Who would have thought?
The information comes from the 2017 edition of the Credit Suisse Global Investment Returns Yearbook, which “compared the returns of various asset class over 117 years in 21 countries with a continuous investment history”.
But how could South Africa have been the best-performing stock market in the world since the turn of the 20th century?
First, check the graph:
One suggestion is that over the past 117 years, the South African equity market has seen local companies face less competition compared with their peers in many other countries:
This is because of prolonged periods of political uncertainty, sanctions during much of the apartheid era, and a persistent fear that South Africa will suffer a similar fate to Zimbabwe.
The benefit of restricted competition is illustrated by short-term insurer Santam, which has compounded its share price at 18% a year (excluding dividends) from the beginning of 1985 to now. Headline inflation averaged 8% a year over this period. This return is particularly impressive when you consider that Santam is a domestically focused company.
Between 1985 and today, South Africa witnessed the Rubicon speech, narrowly avoided a civil war, weathered four recessions, and suffered through 86 months in which the year-on-year decline in the rand was more than 20%. Despite all this, Santam’s moat, its ability to withstand competition and retain its market share, has gone from strength to strength. Because South Africa has not been viewed as an attractive place to do business, there has been little competition from international heavyweights, which allowed Santam to build scale and make itself increasingly tough to compete with.
Heightened perceived risk and the way in which corporate decision-making takes place makes it more likely that foreign businesses will exit South Africa than enter it. Two recent examples that demonstrate this are the decision by Barclays Plc to exit its investment in Barclays Africa and the disclosure by Pioneer Foods that a large multinational had pulled out of a potential merger with the company. Similarly, on the back of the release of the new mining charter, we can expect very little new investment in mining, or in companies that supply mining equipment.
Perhaps it’s time to start dabbling in the market, right?
To win, regardless of the macro-economic environment, it’s important you find a good financial management team who shines brightest during times of distress.
And it starts with getting your financial affairs in order.
To protect and build your wealth, local and fully independent and authorised financial services providers, Consequence, will assist in what need not be a daunting prospect.
Helping you succeed in a tough environment results in the strong becoming stronger, because weak players will eventually leave the market, allowing the winners, like you, to grab a greater market share.
Get on it now.
[source:iol]
