What Generated Investment Returns?

In recent years, South Africa’s economic performance has been a topic of concern and scrutiny. As we analyze the financial data, it becomes clear that South African markets has underperformed global markets, sparking discussions about the nation’s economic growth and political stability. But how did South Africa’s markets in comparison to global counterparts performed?

To illustrate the difference, let’s look at the performance of two major South African Passive unit trusts: the Satrix Top 40 and the Satrix MSCI World Index (attached). Over the past decade, the Satrix MSCI World Index exhibited remarkable gains, registering a 263% increase, while the Satrix Top 40 saw gains of 110% in Rand terms.

Critics often attribute South Africa’s underperformance to its economic growth and political instability, but how have other parts of the world fared during this period? To answer this question, we examine a comparison between the MSCI All Country ex-USA index and the S&P 500 (attached), which represents the top 500 companies in the United States.

In the years 2007 to 2011, the performance of these two indices was strikingly similar. However, as time passed, the USA’s returns surged ahead. This divergence can be attributed to strong economic growth in the USA post 2008 Financial crises.

Delving deeper into the data (second slide), we discover that the remarkable returns of the USA market were heavily influenced by the performances of the 7 tech giants such as Apple, Amazon, and Google. These companies outperformed the rest of the world, and even the other 493 companies in the S&P 500. This underscores the significance of the technology sector in the global economy.

It is essential to remember that past performance is not necessarily indicative of future returns, particularly given the current state of market valuations.

South Africa and other Emerging Markets valuations in comparison to the USA are very attractive at this stage.

As we move forward, the next decade may bring about significant changes in global financial landscapes. Companies outside of the magnificent seven may see an opportunity for catch-up, as well as potential for growth, but the path forward remains uncertain.

The only certainty in the financial world is its inherent unpredictability.

The question prevails: How does the investor gets the best growth opportunity according to their personal risk profile and investment horizon?

Please feel free to make an appointment with me if you want to discuss your existing investment portfolio.

PJ Botha CFP ®, CA(SA)

Leave a Comment

Your email address will not be published. Required fields are marked *