Magnus Heystek on the JSE, the ANC, and 2023 – 2024 investment & disinvestment trends

In this interview with BizNews, investment strategist Magnus Heystek of Brenthurst Wealth Management speaks about: The poor performance of the Johannesburg Stock Exchange’s (JSE); how the African National Congress (ANC) government is scaring away foreign investment; the likely fall-out from South Africa taking Israel to the International Criminal Court (ICC) for “genocidal” acts in Gaza; possible developments in the lead-up to South Africa’s national general election later this year; the countries globally that have offered investors the best returns as well as those that could emerge as safe investments destinations; the Artificial Intelligence (AI) revolution; the performance of his clients’ portfolios; and the investment advice he gives his own children and grandchildren. – Chris Steyn

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Relevant timestamps from the interview

00:00 – Introduction
00:43 – JSE in 2023
03:08 – Total shares sold in 2023
04:43 – SA taking Israel to ICC’s effect on investment
06:54 – Lead up to the election’s effect on investment
11:53 – Apart from America and China where is investor’s money safe?
13:35 – How did your clients do last year?
14:29 – Will you follow the same strategy for 2024?
16:05 – Advice to potential investors for 2024
17:59 – Conclusion

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Highlights from the interview

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Veteran investment strategist Magnus Heystek of Brenthurst Wealth Management reviews the investment – and disinvestment – trends of 2023, and previews likely trends in 2024 in this interview with BizNews.

He speaks about: The poor performance of the Johannesburg Stock Exchange’s (JSE); how the African National Congress (ANC) government is scaring away foreign investment; the likely fall-out of South Africa taking Israel to the International Criminal Court (ICC) for “genocidal” acts in Gaza; possible developments in the lead-up to South Africa’s national general election later this year; the countries globally that currently offer investors the best returns, as well as those that could still emerge as safe investments destinations; the Artificial Intelligence (AI) revolution; the performance of his clients over the past year; and the investment advice he gives his own children and grandchildren.

Here are some of the highlights from the interview:

* The Johannesburg Stock Exchange’s (JSE) bad year:

“It had a terrible year…at one stage, I thought the JSE would be negative for the year…In fact, when you compare us to the rest of the world during the year, we were definitely not World Cup winners when it comes to investment returns. In fact, I don’t think we would have even made the play-offs. You know, when you compare us to the rest of the developed world, I think we would have been second to last. And even compared to the emerging markets, we were one of the few countries where we had negative returns in dollar terms. So whereas world markets, especially the United States, Japan, and certain parts of Europe had phenomenal returns, we were just not in the game. And the danger is that this can continue for much longer.”

* How the African National Congress (ANC) government is scaring away investment:

“We are making friends with countries that are not investors in South Africa, and we are thumbing our nose at the traditional investors in our economy and in our stock market, namely the United Kingdom, Europe, America and we’re making friends with Russia, we’re making friends with China, we’re making friends with Iran and those people and they…and that’s being reflected in the outflow of money from the JSE.”

* Rampant disinvestment from South Africa:

“(Last year)…a total of 135 billion rand left the JSE from foreign equity sales…the foreigners are getting out of our market, our stock market, and they have been doing so for the last seven years. In fact, it’s been straight through from round about the time of Ramaphoria. There was a little bit of inflow of capital in 2017, but since then it’s just been one way. The money is ducking out of South Africa. And it shows in the returns. It doesn’t matter how you analyse the returns, whether it’s in rands, whether it’s in dollars, they are getting out of our big stocks. They’re getting out of our top 40 stocks. And if you reprice the returns of our markets in dollar terms over the last 10 years, you’ve made about 2% per annum in our stock market as a foreign investor. Whereas you’d be making between 8%, 12%, 13% in the US market. You’ve made quite a lot of money in Japan. So right now we are an ugly duckling as far as investment returns are concerned.”

* The likely effect of South Africa taking Israel to the International Criminal Court for “genocidal” acts in Gaza?

“I think it’s no point sugar-coating it. I think we are antagonising the wrong people. We antagonising very wealthy communities around the world with lots of capital. The Jewish community globally is very powerful, very influential. And they don’t like what’s happening in South Africa. And I wouldn’t be surprised. I don’t have the official figures, but this will never be published. But I wouldn’t be surprised if that is one of the factors why foreign capital is fleeing the country.”

* His predictions in the lead-up to South Africa’s national election later this year:

“I don’t have any firm and fast predictions. All I can do is I think that there are certain trends that have been evident in our local market for quite some time. And I think those trends will continue. And the trends are the outflow of capital. I think the trend is lack of confidence in the government, in its economic policies. And I think also that South African investors have really woken up to the fact that they need to externalise their assets to a large extent because the other investment markets are not offering them fantastic returns….We’ve got the plans of smart cities and bullet trains that’s not going away. But we are broke as a country. We just don’t have enough money.”

* The Artificial Intelligence (AI) revolution:

“…they were phenomenal. I mean, shares like Meta went from $80 to $360. We had Apple, the most expensive company in the world. Apple is now, just the share price or the market capital is now bigger than the South African economy. So you’ve got to be in those mega, mega companies. Another very interesting trend is Novo Nordisk, the Danish company, which is now bigger than the Danish economy, making Wegovy and Ozempic the weight loss drug…And you know that that’s the type of thing that you get in the international market, which we just don’t have in South Africa.”

* Apart from America and Japan, where in the world investors’ money could be “safe”:

“Safety is always a relative concern… Gold has proven to be a very good reserve for many investors. Gold price in rand terms has been growing at about 16 to 17% the last 15 to 20 years. Dollar terms, it’s at record level. So precious metals plays a role. You got US bonds that are offering certain value, four to 5%, so bonds offer a return.

“But there are other countries, I think, you know, countries like Switzerland, which is, from a currency perspective, people like Switzerland saying their currency is very stable, so a lot of people are putting their money in Switzerland. And something that is intriguing a lot of people right now is what’s happening in Argentina, where the new president has really, really cut up the rule book and said he’s gonna drain the swamp and he’s going to change all the economic rules. So that is something to watch…”

* The performance of Heystek’s clients’ investments last year:

“…our clients had a very, very good year…I still think one needs to invest globally as much as you can, and that strategy hasn’t changed for about 10 years now….If there are positive signs in South Africa, and we do look out for them all the time, we will change our mind. And if there are signs that the foreigners start coming back, that’s one of the first signs that will alert me to a change in the trend. Then I would look very closely. We still have some very good companies. They are well managed, but they are not operating in a normal environment. It’s not a normal environment for these companies; they operate, but they’ve got to get their products to the ports. The ports are not working, the harbours are not functioning, the railway lines are not functioning. So you can have the best company, best management, great products, but if the infrastructure is against you, it’s just very unfortunate. So we’re forever looking at reasons to be positive on the JSE. And it can change, but at this point in time, I personally just don’t see much happening in the short term considering the uncertainty created by the election. And there’s gonna be a lot of noise in the run up to the election. I think it’s gonna be a chaotic run-up; claims and counter claims and shouting and screaming. And the foreigners will look very carefully as to what’s happening and what the outcome will be.”

* The investment advice Heystek gives his own children and grandchildren:

“You know, I preach to my children and my grandchildren, start a positive relationship with money as soon as you start earning money and develop an investor mindset. So you invest before you do anything else. And I’ve seen it now with my children. I have forced them to start investing literally from day one and I’ve helped them with where to invest and what funds. And I can see that they’re now becoming financially independent. They’re not consumers. They’re not stupid consumers who keep on spending their money.”

* Heystek’s formula for making oneself financially “bullet-proof”:

“And that’s the same message that I have been telling people for 40 years. Start that development journey, but you’ve got to start it. And then it is about putting away some money, understanding what your relationship is to money, what the function is of money, the power of money, what it can do and what it can’t do. And I can see the difference between those who have listened to some of that advice, they’re financially dependent, they’ve made themselves financially bulletproof, it’s a term I’ve been using for many, many years. I…tell the people, before you buy a car, before you buy a house, make yourself financially bulletproof. What I mean by that is, create an emergency fund, which is substantial enough that can take care of you in case of divorce, of losing your job, being fired, or your business closing down, that you can fall back onto some kind of a nest egg that can keep you going for six months, eight months, or even a year. Those people will survive. If you’re running a deficit from month to month to month, you will never break out of that poverty trap