Five financial experts share their views on where South Africans should put their money now.
Geographic diversification, US tech, AI, energy, commodities and local value plays in equities — that’s the guidance that wealth experts have for South Africans looking to invest 1 million rand ($57,500) in current market conditions.
The nation’s capital markets are deep, innovative and resilient, with investors enjoying access to a variety of ways to execute trading strategies, whether the assets are within its borders or abroad. As a key global producer of coal, manganese and iron ore — and with abundant sunshine for renewable energy as well as the biggest middle class on the continent — South Africa offers many investment opportunities.
But while its benchmark stocks gauge is trading near a record, its 80% gain over the past decade in dollar terms — and even its doubling in rand terms — lags the S&P 500’s tripling over the same period.
That’s as the rand’s depreciation of about 30% against the US currency has eroded returns and as South African companies have had to navigate years of graft, onerous regulations, dilapidated infrastructure, erratic power supply, crime and logistics gridlock that have seen Africa’s largest economy expand at an average of less than 1% annually over the past decade.
Local firms have adapted to conditions — about three-quarters of South African companies that trade on Johannesburg’s bourse now do less than 25% of their business in the country, transforming many of the stocks into rand hedges. Several companies have also moved their primary listings to other jurisdictions.
Amid these trends, Bloomberg asked financial experts where South Africans should invest 1 million rand.
This will be the first in a series where we speak regularly to top market watchers on where South African investors should be putting their money and why.
We also asked each expert for a less conventional take on how they would spend funds — the blue-sky play. Ideas included investing in art and expanding horizons through travel.
Mark Mobius
Chairman of Mobius Emerging Opportunities Fund
Mobius is known as the father of emerging-market investing, after he started and ran one of the first funds focused on these regions in 1987 while working at Franklin Templeton.
The Idea
Prioritize Diversification
If working with South African rand, make sure to diversify into other currencies and purchase shares in internationally known companies with strong growth potential.
The Strategy
South Africans who are able to get funds out of the country should put some money into US dollar-based internationally known companies or ETFs as well as fixed-income securities offering annual returns of about 4% to 5%.
With the South African bourse reaching records, there’s no reason why investors shouldn’t consider investing in it. Look at companies that have good internal earnings and that aren’t too dependent on exports and exposed to US trade tariffs. There are a number of very well-run companies in the country, including the drug retailers and retailers in general.
With the US having the biggest market globally by far, it makes sense for South Africans to have some exposure.
For the long term, India is a top play, given its population of roughly 1.4 billion and high growth rates. Buying an India ETF in the US could be an option. China is also performing well, so a China ETF would be another good diversification.
The Watchlist
A good US mutual fund or an ETF based on the S&P 500 Index
India ETFs based on the MSCI India Index
China ETFs based on the MSCI China Index
The Risks
There’s always risk, but investors must be ready to confront it and live with it.
The bottom line is that equity markets tend to rise over the long term as companies make profits, pay dividends and see their value increase as a consequence. Don’t worry about the short-term fluctuations – look at the long term. Nevertheless, reserve some cash to invest when a market crash comes so you can take advantage of bargain prices.
Blue-Sky Play
Health and travel are very important.
You should devote at least one hour per day to aerobic and weight training. This is particularly important as you get older. Your money will be of no use if you are not healthy.
Travel is also a critical aspect of investing. In life, investing and success are about learning and finding out what’s happening around the world, especially where developments are taking place. With travel, you can see and learn about what the future will hold. Right now, Asia would be at the top of my list because that’s where the growth is.
Meryl Pick
Portfolio manager at Old Mutual Invest
Pick’s Old Mutual Gold Fund is the best-performing overall fund with $1 billion or more under management in Africa and the Middle East over the past three years.
The Idea
Old Meets New
The sustained rally in US equities and the dollar itself are coming to an end and cracks are starting to show, with the nation’s ratio of debt to gross domestic product rising, American yields rising and the US losing its last triple-A credit score after a downgrade by Moody’s Investors Service on May 16.
That’s favorable for commodities because they usually work inversely to the dollar, and emerging-market countries will also get a boost from the dollar reversal. Demand for old-economy, old-style commodities is going to be more resilient than people think — that’s the same thesis for platinum-group metals.
When it comes to the new economy, the way in which companies unleash the efficiencies of AI — especially in South Africa — is also a key theme. Firms that are successful in this will have a margin tailwind and unlock productivity. Retailer Shoprite is mining data collected through its reward system to make its marketing budget more efficient. Lender Capitec is using this data to assess lending risks as are financial-services firms Discovery and OUTsurance.
The Strategy
Consider an equity portfolio that favors companies in platinum group metals over gold producers. Bullion could continue its rally amid global volatility, potentially reaching between $4,200 and $4,500 an ounce again, but there’s a probability of less than 50% for that because that would be a big crisis on a global scale.
At this stage, I would say 5% max in gold.
Fossil fuels such as oil and coal are going to continue to surprise because the green transition is slowing down.
The Watchlist
The Risks
US Treasuries are potentially risky due to the unpredictability of the Trump administration and the US president’s relentless attacks on Federal Reserve Chair Jerome Powell for refusing to lower rates quickly.
Blue-Sky Play
Use half of the 1 million rand to eliminate debt, because freedom from debt is its own kind of wealth.
David Shapiro
Chief global equity strategist at Sasfin Securities
Shapiro is a 50-year veteran of South African investing. He is the deputy chairman of Sasfin Securities and is a regular commentator on radio and television programs. He is also an acclaimed cartoonist.
The Idea
Find Global Game-Changers
The beauty of today’s markets is that you’re not confined geographically. With exchange-traded funds run by local firms, South African investors are able to access international assets.
The Strategy
We’re in the early stages of an AI revolution. ChatGPT changed everything because suddenly people realized the power of this technology and started to invest in the infrastructure needed to roll it out, resulting in the rise of chip giants Nvidia, TSMC and ASML.
Cloud-based service providers such as Meta, Amazon, Google parent Alphabet and Microsoft are attractive because these are ultra-rich businesses with huge amounts of money that they can afford to invest.
The tech boom has also seen the proliferation of data centers — power-hungry facilities that house computing power to store, process and distribute information. This is where companies like Quanta Services and Vistra, which provide contracting services to electric utilities, come in.
Payment behemoths Visa and Mastercard are appealing because their technology is available globally, giving them pole position in an expanding environment. With interest rates still elevated in many economies, consumers are watching their wallets, making value retailer Walmart and home-improvement business Home Depot appealing.
With weight-loss drugs rewiring the way people think about obesity and dieting, pharmaceutical firms such as Novo Nordisk and Eli Lilly can’t be ignored. Last of all, the ultra-luxury space has two appealing stocks — Hermes International and Ferrari. They’re untouchable because they’re timeless fashion.
The Watchlist
The Risks
I avoid buying an asset where I can’t determine its revenue stream or profitability, and where the value of the asset is based on the hope that someone in the future will pay a higher price than I did. I stay away from assets that can’t produce financial statements – like an ounce of gold, or platinum, or Bitcoin.
Blue-Sky Play
Art.
I’ve been buying art for more than 50 years. One area that I want to accumulate more art in is in 1930s New York-style Art Deco etchings. This can be expensive – some are about $25,000 apiece, so my common sense says no and that I can’t do that to my family. But if I had 1 million rand just lying around, that’s definitely something I’d buy.
Malungelo Zilimbola
Founder and CEO of Mazi Asset Management
Zilimbola’s 19-year-old company oversees more than 50 billion rand in assets for institutional and private investors and is one of South Africa’s first black-owned hedge-fund firms.
The Idea
Age Matters
Young investors can look more to equities, while balanced funds would be good for those around 45. People around their 60s should consider safer, income-yielding strategies. Ensure your portfolio has a mix of equities, fixed income and alternatives as well local and offshore exposure. Seek professional advice.
The Strategy
About 70% of the 1 million rand should be in South Africa, where you understand the risks and aren’t taking currency gambles.
Of the funds allocated locally, put about 60% to 70% in equities, 15% to 25% toward fixed income (bonds, money market and cash), 5% to 10% in property and the rest in alternatives, including hedge funds, private equity and infrastructure.
Locally, we back entrepreneurial and trustworthy managers who have some skin in the game. In South Africa, our people are our biggest strength as evidenced by the global successes of Elon Musk and Roelof Botha, a former managing partner for venture-capital firm Sequoia Capital. Both form part of the so-called PayPal Mafia — a group of influential former employees of the payments firm alongside Peter Thiel.
The success of businesses such as Capitec, Naspers and Discovery against a backdrop of slow economic growth and high unemployment comes down to great management.
I also favor South African bonds, which offer investors the highest real rates in the world.
For alternatives, there are lots of opportunities in infrastructure given the need to increase fixed-capital formation to grow the economy and for development.
The rest should be offshore, which includes the rest of the continent.
Don’t indulge in Africa pessimism — the continent is a beautiful investment destination with a young, growing population. There’s a lot of perception risk but it’s really just biases. Africa provides investors compelling uncorrelated returns.
The Watchlist
The Risks
The biggest risk is permanent capital loss, but due diligence can mitigate this.
You need to understand the company and how it makes its money. Look at its financial statements, cash-flow generation, returns and growth prospects as well as its price relative to its fundamental value. Also, look for good management and a strong board of directors that are responsible for oversight and governance. Sometimes, the public may lack the skills to evaluate management but good directors act as fiduciaries.
Blue-Sky Play
I’d want to travel and experience new countries and new cultures. Jamaica, Indonesia and Vietnam are on my list right now. Wherever I go, I wouldn’t want to be too far from a golf course. I’d also like to use some of that money on new golf clubs and to upgrade my golf kit. Or I might just put that money toward a nice watch, a timeless investment piece. I don’t yet have a Patek Philippe but I’d probably have to save up a lot more for the model I like.
Chantal Marx
Head of investment research at FNB Wealth and Investments
Marx helped start an in-house equities-research platform at a unit of First National Bank, the country’s oldest lender.
The Idea
50% South Africa, 50% Offshore
Companies with high and growing cash flows, strong balance sheets and long-term growth potential have the most appeal.
The challenge that we’re facing now, particularly outside of South Africa, is that quality isn’t necessarily coming at a reasonable price.
The Strategy
Despite the Johannesburg bourse’s run, there are some sectors that are extremely cheap. We really like banks. They have been beaten down unnecessarily because economic-growth expectations have deteriorated slightly and because there’s been a tactical preference for insurers over the last year or so.
South African retailers also hold appeal. They just need reasonable top-line growth because they’re working on margins through very stringent cost control and careful merchandising. Pepkor, for example, now also gets a bigger contribution from fintech via its lending and smartphone-rental units, which is also margin-supportive. Many local small- and mid-cap companies are just way too cheap when looking at their share prices relative to earnings, with some of these firms either ripe for an eventual re-rate or takeover.
Invest about half of the funds offshore, because limiting investments to South Africa would mean missing out on tech exposure, beauty or skincare companies and other prestige stocks.
While many of these are expensive, trading at prices more than 200 times forecast earnings in the case of Palantir Technologies, something will eventually happen to cause these companies to correct to more reasonable levels and when this happens, you need to have the confidence and guts to be greedy when others are fearful.
The Watchlist
The Risks
The risk is that structurally slow and low growth in South Africa remains entrenched. And since it’s a small, open economy, it’s dependent on what goes on abroad – any deterioration in the external environment would be problematic.
A slowdown in US growth or a possible inflation shock would put further pressure on global expansion, impacting investments. I’m also probably most nervous about a black-swan event, especially when it comes to a possible trigger for certain valuation bubbles popping. Speculative activity is high currently and there is potential for a prolonged downturn in equity markets depending on what that trigger is.
Blue-Sky Play
A trip on the Rovos Rail.
I can’t think of anything more magical than spending 16 days travelling through Africa from Cape Town to Dar es Salaam on a luxury train, stopping for a safari here and there and dressing up for dinner. If I take the royal suite, it’ll come in at just under 1 million rand for two people and I would probably use the balance to buy drinks. Though if I take a different luxury suite, I could buy an evening dress for dinner every night, too.