James Klempster, CFA. Director: Investment Management, Momentum Global Investment Management
I am incredibly fond of our home market in South Africa. Yet, when investors ask me why they should consider investing offshore, my answer is, “Why wouldn’t you?”
There are two main reasons why global markets are worth a look. The first is the opportunity to enhance your returns. With such breadth of markets available there are plenty of avenues to improve the chances of achieving the investment outcomes you need. The second reason is one of diversification. The world is replete with markets and asset classes all of which will react slightly differently to news flow and the prevailing macroeconomic winds. Market volatility in one area may be offset by growth in another, which can help you to handle the investment journey better, and stay invested.
South Africa’s stock market boasts a number of well-run, globally competitive companies. But the market is pretty small. In fact, it accounts for less than 1% of the global all-countries index. It is also pretty concentrated. Realistically, how many stocks drive the performance of the JSE? Five? Maybe ten? What happens if one of those has a bad run, or worse?
The MSCI World Index has a market capitalisation of US$41 trillion and gives access to 23 equity markets, each imperfectly correlated to the global market. It represents over 1 600 businesses, and the largest stock, Apple, accounts for 2,4% of the index. The top 40 stocks account for less than 30% of the index. In South Africa Naspers alone accounts for 30% of JSE’s Top 40 Index. There are a further 21 markets and US$5 trillion of stocks available outside of South Africa in the MSCI Emerging Markets Index.
Global investments need not be limited to equities; we have massive and varied fixed-income markets too: From vanilla government bonds, through to inflation-protected securities, investment-grade credit, high-yield bonds, convertible debt and a variety of floating rate-securities. Some of these assets provide capital protection in times of market stress; others are more orientated to capital growth.
Beyond equities and bonds there are plenty of other asset classes such as property, infrastructure, commodities, hedge strategies and private markets to consider. With so much variety the choices can be daunting and that is why we find many investors seek a trusted partner such as Momentum to manage global multi-asset portfolios on their behalf.
Few artists use only one colour. Architects rarely stick to one type of building material. Why would investors limit themselves to only one market?
This post was sponsored, paid for and written by Momentum Investments.