I’ve been asked by a few readers this week about an article that’s doing the rounds, and this graph that went with it:


Yes, dismal, isn’t it?

Here’s a quote from the article:

Shapiro said he was shocked when he looked at a graph of the five-year performance of the JSE in US dollars.

Someone who bought into the JSE would have shown a return of around 60% in rand terms. The US’s S&P 500, in comparison, was up by around 55%.

However, when the JSE’s value is converted into US dollars, the JSE’s returns are down 25%. That means there is an 80% gap between the JSE and the S&P 500 when measured in a hard currency.

“This shows how far down the tubes we’ve gone,” said Shapiro, highlighting that the rand has declined by 120% over the last five years [RA: the emphasis is mine].

And here’s my first thought on this kind of apocalyptic-bad-news analysis: “the rand has declined by 120% over the last five years” would indicate that the value of the rand is now negative.


100% of value gone means that the Rand is worthless. That extra 20% over and above that? I guess that would make the Rand “negative money”.

I know my friend Deon Gouws from the Credo Group has a particular irritation when it comes to this kind of bad math. He wrote about it on Moneyweb’s soapbox: “You Can Feel A Bit Better About The Rand.” You should read it. And you can follow him on twitter here.

I think what we’re actually trying to say is that the Rand was at R6.80 to the dollar five years ago, and sits at R15 to $1 today. In practice, what that means is:

  • If R6.80 could have bought you an Americano in New York five years ago;
  • That same R6.80 can only buy you half an Americano today. Less than half, even.
  • That is: the rand has lost over half of its overseas purchasing power (note: that’s half its value, not 120% of it).

I’m emphasising the overseas part because, for the most part, we don’t live overseas. Yes, it might be more expensive to visit other countries. And yes, perhaps your portfolio would have done better if you’d just taken a bet on the dollar than taken a bet on the local stock market. But we don’t live overseas.

We live in South Africa, where our expenses are priced in Rands. And those haven’t all increased in line with the weakening of the Rand, because not everything is imported. I harped on about it in this post: “Your Salary Has Lost Half Its Value In Dollar Terms.”

Also, even if we’re talking about imports, one of our big imports is fuel. And consider this:

  • Five years ago, a barrel of crude oil cost $118.93.
  • Today, that same barrel of crude oil would cost $49.88.
  • So if we called ‘barrels of oil” a type of currency, then:
    • Five years ago, 0.008 of a barrel of oil would have bought you $1 (or an Americano).
    • Today, that same 0.008 of a barrel would only buy you $0.40 (or less than half an Americano).
  • So in barrel-of-oil terms, the Rand is roughly on part – even stronger.
  • That is: the barrel of oil that cost R808.72 five years ago would cost you R748.20 today.

And perhaps you might say something like “Oh, well, oil is a commodity and it’s going through a slump. The Rand is different!”

Well, no, it’s not that different: the Rand is also going through a slump. Not all of the depreciation is South Africa’s fault – much of it is just a general emerging market problem, and/or a strong dollar problem. You can’t blame that part on domestic woes – it’s just global capital sloshing around the financial system. Of course, some of the problem is internal/domestic. As in: perhaps the depreciation wouldn’t have been so severe if we’d had our house in order. But still.

So let’s go back to that first graph (which isn’t really a question of JSE performance – it’s much more a function of the weakening USD:ZAR exchange rate). Even if you’re upset by the performance over the last 12 months, that’s just a time-period. Time periods are arbitrary, and they can be changed to give vastly different results. For example, if you looked at the performance of that same index from inception in 2003:

Screen Shot 2016-05-26 at 11.38.14 AM

What would we say here? That the country has flourished over the last decade and a half, despite a global financial crisis, because the stock market index is worth almost 4 times what it was in 2003?

This kind of thinking is dangerous. All we can really say is: there are some investments that are better than others. If you’d put R76,000 into dollars in 2003, when the exchange rate was R7.60 to one – then today, that $10,000 would be worth R156,000. If you’d put that same R76,000 into the index, then today, it would be worth somewhere in the region of R600,000. Over some time frames, the JSE has outperformed the Rand/Dollar exchange rate – in other (more recent) time frames, it hasn’t.

But agreed. If you really wanted to have done well over the last five years, then you really should have taken your $10,000 worth of Rands in 2012 and put them into the S&P500.

Hindsight, eh? I wish it was foresight. #regret

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.