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cover story investment

By Jaco Visser

Photos: Shutterstock I http://www.ashburtoninvestments.com I http://www.twitter.com/absasouthafrica

Sage investment advice holds that long-term investors should include a fairly large proportion

of equities in their portfolios. Equities traditionally outperform inflation by a sizeable margin.

What happens when the go-to stocks on the JSE deliver meagre capital growth over the

medium term? And which fundamentals need to change for the situation to improve?

finweek 24 October 2019 41

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quities, as the historical beaters of inflation,

have lost steam and many retail investors and

pensioners now begrudgingly keep an equity

portion in their portfolios. Local and global

market forces have beaten the life out of many of South

Africa’s largest and most traded shares.

The FTSE/JSE Top 40 Index, a local benchmark

index ranked by market capitalisation, delivered capital

growth of 3% per year over the past five years and a

total return of just over 5%. Given that consumer prices

rose by 5.9% per year over the same period, investors

in the Top 40 Index lost out to inflation, even when

dividends are considered.

Bonds, or listed debt by government and companies,

returned an annual 8.16% over the past five years,

according to Bloomberg data.

In addition to the largest shares’ lacklustre performance

over the past five years, several long-standing

constituents dropped from the index, while the recent

resource price boom benefitted only a few mining

stocks. Of the 42-member * Top 40 Index during the

final quarter of 2014, only 19 delivered capital growth

to investors over the last five years. The other 23 shares

delivered declines ranging from 98% for Steinhoff

to 5.34% for Absa Group. Some issues were of an

international nature while others were geographical and

company-specific.

The Fed yanked the carpet

One of the main reasons for the share price malaise among

Kwaku Koranteng

Head of institutional

business at Absa

Multi Management

Nico Els

Fund manager at

Ashburton Investments

SLUMBER ON THE

TOP 40 INDEX

the index constituents was the US Federal Reserve’s

(Fed) interest rate hiking cycle which ended last year.

Investors from developed economies, conscious of the

risk of investing in emerging markets with all their political

and policy uncertainties, theoretically favour less risky

developed-market assets.

“During the US interest rate hiking cycle that ended

in 2018, periods of sell-offs in emerging markets had

a negative impact on SA’s 40 largest and most liquid

stocks,” says Kwaku Koranteng, head of institutional

business at Absa Multi Management. “The negative

impact varied depending on the company, its sector and

geographical reach.”

For instance, Naspers** performed well over this

five-year period, while other listed companies, such as

SA miners (up to 2016) and companies in the healthcare

sector were negatively impacted, he says. Investors in the

three private-hospital shares would have lost at least a

third of the value of their capital since 2014.

Mediclinic, Netcare and Life Healthcare, the three

largest private-hospital chains in SA, dropped out of the

Top 40 subsequent to 2014. Naspers delivered capital

appreciation of 304% to investors as its turn-of-the-

century bet on Chinese gaming giant Tencent paid off.

Nico Els, fund manager at Ashburton Investments,

says that the emerging-market sell-off in assets

happened very late in the US interest rate hiking cycle.

The MSCI Emerging Markets Index, which comprises

more than 800 companies in 23 emerging countries,

reached its lowest point in January 2016 – a month after