It’s been a strong start to the year for most markets. Despite all the uncertainty in the world, markets have performed well over the past 12 months.
First, let’s take a look at the rand.
I really like the chart below from Anchor Capital, which provides a longer-term perspective on the currency’s behaviour.
The chart shows the rand is currently well above its ‘fair value’, which simply means it is weak compared to its historical trendline. This is great for tourism, making South Africa a very affordable destination for foreigners.
I see this firsthand—Knysna is currently flooded with what we call “the swallows” (seasonal visitors escaping the Northern Hemisphere winter).
But there’s another important insight in that chart. It shows that the rand hasn’t always been undervalued.
From 2001 to about 2013, the rand was actually much stronger than its fair value (it was expensive for foreigners to visit). This was due to rising commodity prices and strong global economic growth. Since our economy is heavily reliant on mining, and miners benefit when there is high demand for commodities, the rand tends to strengthen in these cycles.
It’s entirely possible that we see this dynamic play out again. Markets move in cycles, and I remain sceptical of those who confidently claim that the rand only moves one way.
Moving on…
Let’s look at how the two key indexes we should be following have performed. One—the JSE All Share Index—represents South Africa’s stock market. The other—the MSCI World Index—reflects the average performance of all developed market economies, with approximately 70% weighted to the US market.
The chart below accounts for rand fluctuations, so all returns are measured in rands.
Chart: 1 year return for JSE and MSCI World.
The JSE delivered a 23% return over the past year. In comparison, the MSCI World is up 17%. I don’t know anyone who would be unhappy with those numbers.
Of course, we shouldn’t focus too much on one-year returns when it comes to equities. Markets are volatile, and short-term performance can vary depending on which month you measure.
Instead, we advocate for a minimum investment horizon of five years if you’re going to invest in equities. Otherwise, cash and bonds may be more suitable.
Let’s take a five-year view.
Five years ago today, we were about a month away from the COVID crash. Some early reports were coming out of China, but we hadn’t yet seen the full impact on Europe or the rest of the world. It feels like a lifetime ago.
Chart: 5 year returns for JSE and MSCI World.
Despite the turmoil, over the past five years, the JSE All Share Index has returned just below 13% per year and the MSCI World Index has returned just under 17% per year. Those are incredible returns, especially considering everything that has happened in the past 5 years.
We can’t predict if equities will outperform cash in the short term, but historically, there’s about a 90% probability that they will over a five-year period.
Now, let’s go back even further. The chart below shows returns for these two indices since 2005.
Chart: returns for JSE and MSCI World since 2005
(Notice how SA Equities dominated the first 10 years of performance, and then the international markets dominated the next 10? Markets are cyclical. Will this trend continue indefinitely? What does this mean for your portfolio?)
Over the past 19 years, the JSE All Share Index has returned an annualized 13.6% and the MSCI World Index has compounded at 15.4%. These are exceptional returns.
Over longer time periods, the averages tend to play out, and growth assets will outperform cash and bonds investments. The analysis above reinforces this. But over shorter time horizons, it’s entirely possible that growth won’t always outperform equities. That’s why getting your asset allocation right is so important—because it’s not just about markets, it’s about structuring your portfolio in a way that aligns with your goals, your needs, and your life story. If you can get that right, you can let the market do the heavy lifting.
