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Offshore bulls feeling a bit bearish

If you are wondering why things have quietened down in the Offshore Bulls Clubhouse a quick look at the markets will reveal a lot.

Life is good for investors in South Africa right now, says Kelin Pottier, Product Development Specialist at 10X Investments, who adds that 10X will soon be launching the 10X Top 60 SA Equity Index Fund.

Pottier says the rand is one of the best performing emerging market currencies, and the FTSE/JSE ALSI is one of the best performing global indices in rands, both since the Covid-induced lows of March 2020 and over the last 12 months (see charts, right and below).

“That is compared with major developed and emerging markets, including the S&P500 and the MSCI World Index,” he says.

Pottier adds that the big problem right now for those who have all their money offshore is that bond yields are effectively at zero, cash is at negative real yields and you have US equities nearing all-time high valuations, with price-earnings ratios of around 37 for the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google).

“If you are offshore, your only option right now is to be in equities and that option is the most expensive in the world.”

If you have money to invest locally, says Pottier, “government bonds are delivering significant positive real yields (9.93% nominal on the 10-year), our stock market is a star performer and commodities have performed exceptionally.”

“Despite record low repo rates resulting in local cash failing to keep pace with rising inflation, investors are able to achieve a pick-up on both cash and inflation in the bond market without bearing significant interest rate risk,” notes Pottier.

“You have lots of good options. If you have taken all your money offshore you have effectively locked yourself into one option and it is not necessarily the best one.”

Pottier points to the “significant turnround in the local economy” thanks to the commodities boom. He says that things have been very positive from a resource exports point of view, which has generated a tax windfall.

“Treasury has been able to persistently reduce debt issuance and we have been able to fund much-needed social spending programmes to plug the holes created by Covid, lockdown and the unemployment fallout.”

Against this backdrop, 10X is excited to offer investors low-cost South African equity exposure with the launch of the 10X Top 60 SA Equity Index Fund in November. The index will track the 60 biggest SA-listed companies (by market capitalisation) whilst limiting the maximum exposure to any single share to 6% at each rebalance.

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