Challenging South African economic conditions and the weak rand have helped the Satrix Nasdaq 100 and Satrix S&P 500 to significantly outperform the Satrix JSE Top 40.
South Africa has had a tough start to the year. Intensified load-shedding, interest rate hikes, being greylisted, and political tensions have hammered the local economy.
The rand has also weakened to its lowest level ever after the US Ambassador to South Africa claimed the country sold arms to Russia.
Following this debacle, the South African Reserve Bank (SARB) added sanctions by the United States as a new risk in its new Financial Stability Review (FSR).
The SARB also said capital outflows and declining market depth and liquidity are additional risks to the country’s financial stability.
The SARB’s warnings scared many investors, and the rand weakened to R19.87 against the US dollar on Tuesday.
These events have a big impact on South African investors. Those who put their money into global markets are smiling, while people who bet on local companies are feeling the heat.
To illustrate the big difference in performance, Daily Investor compared three ETF investments’ performance for 2023 year-to-date.
- Satrix Top 40 – The ETF tracks the performance of the FTSE/JSE Top 40 Index which includes the 40 largest companies on the JSE.
- Satrix S&P 500 – The ETF provides an investment vehicle for investors wishing to track the movement of the S&P 500 index.
- Satrix Nasdaq 100 – The ETF provides an investment vehicle for investors wishing to track the performance of the Nasdaq 100 index.
The return in rands of a R1,000 investment in these three exchange-traded funds was telling.
The Satrix Top 40 investment grew to R1,043, providing a return of 4.3% in the 5-month period.
The Satrix S&P 500 investment grew to R1,270 over the same period, and, therefore, gave investors a 27% return.
The Satrix Nasdaq 100 was the best performer and delivered R1,514 to investors, a 51.4% return for the five months.
The offshore investments’ strong performance is a combination of capital growth and rand depreciation.
Removing the currency effect from the offshore returns, the S&P 500 investment increased by about 10.3%, meaning the excess 16.7% return was purely due to the weakening rand.
The Nasdaq 100 would have grown by about 32.3% when removing the exchange rate gains, leaving the remaining 19.1% gains to the weakening rand.
The chart below shows the performance of the Satrix Nasdaq 100, Satrix S&P 500, and Satrix Top 40 year-to-date.