South Africa – An Attractive Investment Destination or a Death Trap?

by | Nov 1, 2020

In a recent interview with The Money Show’s Bruce Whitfield and RECM (fund manager) Chairperson Piet Viljoen, it was refreshing to hear something different.  Not necessarily ecstatically positive, but not entirely awful either.  The dynamics are shifting. 

Whilst there are signs of life in our local economy, the bad news keeps on coming.  Thus, a one-way bet against our country and its currency seems alluring, even rational.

It’s not.

South Africa remains an attractive investment destination, with her companies being sold for a song, opening up opportunities to make respectable returns.

Herein lies the irony.  Whilst foreigners remain net sellers, highly informed foreigners are buying whilst sellers (both local and foreign) aren’t necessarily being meticulous as to their reasons – sellers are benchmark oriented – prices fall and so they panic and sell.  South Africans in particular, are so fixated on getting their investments offshore, that they do so at the expense of their local investments, rather than complementing them.

At Resolute, diversification is protection against ignorance. There is no crystal ball as to what the future holds.   This is exactly the reason we have been encouraging our clients to invest offshore for so many years.  Whilst South Africa is cheap from a pricing perspective, we have a highly dysfunctional government, debilitated state-owned entities, a tedious regulatory environment and macroeconomic discrepancies.  Through investing offshore, we are hedging against political and economic risk, as well as a depreciating rand. 

Locally, pockets of positivity are presenting themselves, but we need to see more action being taken before we can become bullish on our country.  Corruption needs to have concerted consequences.  Whistleblowers need to be rewarded.  This is when confidence will be restored, buyers will play, and prices will soar.  The rain is starting to fall, the mud is washing off and the colours are starting to show.

As Piet Viljoen says, “it’s very definitely a trend”.  Local and foreign investors are starting to buy South African assets.  The JSE as a business is solid; this kind of opportunity to make money in our local markets only comes around “once in a generation”. 

Invest with curiosity.  Diversify with intent.  Opportunities are born amidst chaos.