in this issue look to the east - brenthurst wealth · pdf filelook to the east for some...

Brenthurst Wealth Management (PTY) LTD FSP No. 7833 June 2015 | Issue 241

LOOK TO THE EAST FOR SOME CAPITAL APPRECIATIONBy Magnus Heystek - Investment Strategist

TRAVELLING TO FAR SHORES SHOULD BE ONE OF THE MOST SATISFYING PERSONAL PURSUITS KNOWN TO MAN. AND SO IT STILL IS. BUT RETURNING RECENTLY FROM A TWO-WEEK TRIP, TO ATTEND AMONGST OTHERS, TWO INVESTMENT SEMINARS—THE ONE IN SINGAPORE AND THE OTHER IN TOKYO—ORGANIZED BY INVESTEC ASSET MANAGEMENT, I WAS, INSTEAD, FILLED WITH A DEEP SENSE OF FOREBODING FOR OUR COUNTRY, SOUTH AFRICA.

The seminars, at which investment gurus from Blackrock, Morningstar and other top investment fi rms addressed a small group of South African fi nancial advisors, focused on China, India, Japan and the Asian countries. SA was only mentioned in passing and often in terms of a comparison of what we should be doing and are not.

From the moment you board Air Singapore and land eleven-hours later at the Changi Airport, you are in another world. No, that’s not true. Japan is another world in terms of its language, culture and customs. More about that later.

Singapore on the other hand is on another planet in terms of effi ciency, delivery, friendliness and cleanliness.

Singapore, whose enigmatic and farsighted leader Lee Kuan-Yew died earlier this year, is celebrating its 50th year of independence, fi rst from British rule in 1959 and then, after it broke away from its short-lived coalition with Malaysia, as an independent city-state in 1965.

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INVESTMENT REPORT JUNE 2015 • ISSUE 241

IN THIS ISSUE

LOOKING TO THE EAST: SOME CAPITAL APPRECIATION

1

NO NATURAL RESOURCES

2

JAPAN EMERGES

2

THE CHINESE DRAGON AWAKES

3

SOUTH AFRICAN REALITY

3

CONCLUSION

4

JAPAN VERSUS THE JSE

4

CONTACT US

55


There are many parallels with South Africa. Both broke loose from British colonial rule at the same time. SA went its disastrous route in terms of apartheid. Singapore guided and inspired by Kwan-Jung, set out to become the most modern city-state (its total land area is about a third of Johannesburg) in the world.

NO NATURAL RESOURCESSingapore, situated in a tropical swamp, has no natural resources, apart from its port in a very strategic position in terms of trade between east and west. It grew its economy in 50 years by focusing on trade, port services, fi nancial services and more recently tourism and air travel. Changi airport, for instance, receives 50 million visitors per year and the plan is to push that up that 70 million in the next couple of years. Singapore only has 5 million people and no unemployment.

Singapore’s largest export item is refi ned oil, yet it doesn’t have any oil. How is that? It refi nes a great deal of the oil found in the Far East, cheaper and quicker than anyone else. That’s why, when standing on the top fl oor of the Marina Bay Sands hotel—the hotel known for a 150 meter rim fl ow pool on the top fl oor—all you can see as far as the eye stretches, are tankers waiting to offl oad crude oil and pick up the refi ned oil.

All the stories told about Singapore and chewing gum are true. Not only is it an offense to chew gum, but is it not to be found anywhere on the island. This magnifi cent city is spotlessly clean and you very soon start to think and act like a long-standing Singaporean.

You don’t dream of dropping any litter and any rubbish you might have is also automatically sorted in the various bins provided all over the city in terms of paper, plastic and glass.

Economic growth in Singapore is about 5% this year and GDP per capita, which used to be half of SA thirty years ago, is now more than fi ve times that of SA at approximately $83,000.

The work ethic is astounding. On returning from a dinner in the fi nancial centre at 11 pm one evening we noticed all the lights still burning in the gleaming offi ce buildings of Deutsche Bank, HSBC and a host of other fi nancial names not familiar to South Africans.

We asked our tour guide why this is and were told people were still working and that they were about to knock off for the day.

Very soon thereafter the pavements were fi lled with people heading in every direction, either to bars, cafes or train stations. It was not uncommon to see dark-suited businessmen and women with attaché cases using bicycles as their mode of transport. Motor vehicles are only for the very rich and apart from the huge cost of getting a license, are all cars automatically scrapped after ten years. No questions about the condition: scrapped by law.

JAPAN AWAKESAnd then on to Japan, still the world’s third-largest economy and one that is busy with its own form of quantitative easing known as Abenomics, to stimulate its moribund economy after a 20-year slump.

And it seems to be working. Growth in the fi rst quarter this year, at just under 2 % annualized, was heading higher and there was even a glimmer of infl ation in the economy. The Japan stock market is up 20% the past 12 months.

In addition, we were told at an investment seminar in a building overlooking the Japan Central bank, is that the Japanese business world was also busy doing its part in terms of running companies on a more western basis, with greater corporate governance and the appointment of outside directors to boards, to name just a few.

Japan is like no other country I’ve been to. I don’t for a second try and pretend to even scratch the surface of this fascinating place, but the little I learnt left a lasting impression. If Singapore took your breath away in terms of its modernity, architecture and effi ciency then Japan left you with a deep desire to know more about its culture and rituals. It is a country of rituals where serving and drinking tea can take more than 30 minutes. Or where the pre-amble and warm up to a sumo match can also take up to 20 minutes before, in whirl of massive fl ailing arms and legs, the actual confrontation is over in seconds. It’s very rare for a sumo match to last longer than 10 seconds.

You cannot discuss the outlook for any Asian economy without analyzing what is happening in China, that great lumbering hulk of a country overshadowing all its neighbours.

China, for instance, used more cement in the past three years than the USA used over the last one hundred years! There are 18 cities with a population of more than 10 million people, most built in the last ten years.

For 18 of the past 20 centuries China was the largest economy in the world and it is just a matter of time before it regains this spot. Talk of a collapse in China is unfounded and misplaced.


THE CHINESE DRAGON AWAKESThe Chinese stock market has more than doubled over the past 12 months and this is considered to be but a forerunner what could happen in the future. There are two huge events that are about to unfold over the next months and years.

FIRST, there is the high probability that the Chinese renminbi could be included as one of the reserve currencies of the International Monetary Fund (IMF) and World Bank later this year in October. The current four currencies are the US dollar, the euro, the British pound and the yen.

The SECOND and perhaps even more dramatic likely development, is that the Chinese equity and bond-market could be included into global indices used by pension funds and institutional markets later this year or sometime next year.

China is currently included only in the regional indices and a move into the global indices would, in the view of the presenters, be a game-changing event for Chinese equities and bonds. Global pension funds and fund managers would have to massively increase their holdings into Chinese stocks and bonds over the next couple of years.

BACK TO SOUTH AFRICAN REALITY Why would such a trip make one depressed on your return?

If this trip was meant to broaden the mind, then it succeeded as far as I and the other fi nancial tourists were concerned.

While leaders in countries like Singapore, India, China and Japan, to name just a few, were doing everything in their power to get economic stumbling blocks out of the way in order to accelerate economic growth, back in SA leaders are doing everything to block economic growth.

If it’s not the new BEE-codes, Affi rmative Action, visa-regulations, land-reform or strikes it is the dithering about Eskom, to name just a few for example. Heaven forbid, poor old retired ex-world champion boxer Dingaan Thobela found himself arrested by our “elite” crime-fi ghting unit the Hawks for not being registered at the Financial Services Board. What a silly waste of precious resources.

The sharp drop in GDP growth to 1,3% in the fi rst quarter of the year does not surprise me. I think that type of growth is likely to become the norm. In the same week unemployment fi gures shot up to more than 26%, the highest since 2003. We are third in Bloomberg’s Misery index, after Venezuela and Argentina.

And still we don’t think it’s a crisis. We spend more time on analyzing the poor performance of the Blue Bulls rugby team than the prospect of economic Armageddon that is busy unfolding.

The lead economic story in the Sunday Afrikaans newspapers Rapport describes the economic activity as “critical but stable”. That’s like a doctor describing a dead patient as being “stable”.

Two weeks ago government announced, on the threat of a prolonged strike, a wage increase of 7% (3% in real terms) to government workers that will cost about R66 billion per year. Where is that money going to come from?

We know from where: from the approximately 5 million taxpayers who are funding this circus. The center cannot hold for much longer. Retail sales, new motor sales and even gambling revenues are busy plunging.

On my way out of OR Tambo I also grabbed RW Johnson’s new book, called How Long Can South Africa Survive? (Jonathan Ball Publications).

Johnson, a long-time political and economic com-mentator for various British newspapers, gives SA about two years before the economy goes into a terminal decline as well as a collapsing rand. We will run out of money by then and will have to apply to the IMF for an emergency loan. Read it for yourself and make up your own mind.


CHART SETTINGSTime span: 26/05/2012 - 26/05/2015Currency: ZARChart Type: Total returnChart Axis: Percentage

CUMULATIVE RETURN - 06/05/2012 - 26/05/2015 FTSE/JSE All Share Index (ALSI) 79.3 Franklin Japan A Acc USD 119.8

JAPAN VERSUS THE JSEPERFORMANCE SUMMARY 01/05/2010 - 01/05/2015

We have blown the proceeds of the previous commodities boom and there is very little to show for it. It has been spent on wages and salaries, a bloated government sector and various vanity projects.

It should have been spent on infrastructure (Eskom et al), education and creating jobs, even low-paying and menial ones.

We have identifi ed 3 offshore funds that we intend including in the portfolio construction of our clients. • INVESTEC ASIAN EQUITY FUND• FRANKLIN TEMPLETON INDIA FUND• FRANKLIN TEMPLETON JAPAN FUND.

PLEASE DO NOT HESITATE TO DISCUSS THESE FUNDS WITH ANY OF OUR FINANCIAL ADVISORS.

CONCLUSION

26/05/2012 - 26/05/2015 © POWERED BY DATA FROM FE 2015


BRENTHURST WEALTH CERTIFIED FINANCIAL PLANNERS: Brenthurst Wealth Management (PTY) Ltd is a registered fi nancial services provider and is a fully-fl edged fi nancial and investment services company with offi ces in Johannesburg, Pretoria and Cape Town.All our Financial Planners are CFP® Professionals and members of the Financial Planning Institute of Southern Africa. They are highly qualifi ed to give advice on all investment matters.

MAGNUS HEYSTEK EMAIL: [email protected] TEL: +27 (0)83 692 8635MAGNUS is a director of Brenthurst Wealth and is in charge of investment strategies, research and client communication.

BRIAN BUTCHART CFP® EMAIL: [email protected] TEL: +27 (0)82 335 5117BRIAN is head of fi nancial planning at the CAPE TOWN OFFICE and a director of Brenthurst Wealth Management.

JOHAN BURGER CFP® EMAIL: [email protected] TEL: +27 (0)82 732 8655JOHAN is the head of fi nancial planning at the PRETORIA OFFICE and a director of Brenthurst Wealth Management.

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DISCLAIMER: Brenthurst Wealth Management is an authorized fi nancial services provider Reg No 2004/012998/07 FSP No. 7833. This document should not be viewed as investment advice as each individual investor is different and has different investment needs. Please consult any one of our highly qualifi ed investment advisors before acting on the advice and recommendations contained in this newsletter. Kindly contact BWM for an appointment.

in this issue look to the east - brenthurst wealth · pdf filelook to the east for some...

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