Since 1996, the JTOPI South Africa Top 40 stock market index has increased in value by around 15,500%. In comparison, the United States’ S&P 500 has grown by around 670% and the United Kingdom’s FTSE 100 has roughly doubled in size.
For example, the UK could still be a good market to gain some exposure to, particularly if you’re a South African investor.
Strong British Industries
One key reason you may wish to consider investing in the UK is that it has a number of strong industries. Its financial services sector play a big role both domestically and internationally, with many of the world’s biggest banks and insurance companies basing themselves in London.
The creative industries sector is also huge, with famous brands like Warner Bros. Studios, MGM-British Studios, Pinewood Studios, and Aardman Animations all producing quality content from the UK.
Another growing industry in the UK is iGaming. The sector benefits from the stable regulations provided by the country’s regulator, the Gambling Commission, and the fact that many Brits are comfortable with wagering on games and sporting events. Players in the UK have a lot of choice, so companies must continually innovate by creating new and exclusive online slot games like Chicken Drop, El Paso Gold, and Tomb of Ra. If you are considering iGaming companies as an investment, you will want to examine each prospective business’ ability to keep up in this innovation race.
Manufacturing accounts for around 20% of the UK’s economy, but this is mostly high-value, lower volume items like cars, heavy industrial equipment, and aircraft rather than low-value mass-produced products. Professional services, construction, and tourism are all big industries in the UK.
Currency Risk
Currency risk is something that all investors have to consider when they gain exposure to another country. While the value of companies and other assets can rise and fall in value, so can the exchange rate between the Rand and foreign currencies like the British Pound.
This means that investment gains could be wiped out by an unfavourable shift in exchange rates. However, it also means investment losses could be offset by the opposite.
The value of the Rand compared to Sterling has fluctuated quite a bit over the last decade too, starting out at 11 ZAR for 1 GBP in 2011 before peaking at almost 24 ZAR for 1 GBP in January 2016.
This would have meant an investor who converted their Rand into Pounds in 2011 would have seen their holdings double (in Rand) over five years, assuming the investment itself didn’t change in value.
However, those gains have been eroded slightly as the value of the Rand has continued to move up and down in more recent years, though it did take a particularly tough beating in 2018.
There’s no way to say for certain which way the markets will go in, though typically a currency will decrease in value if investors deem there to be political, environmental, or social risks or if the economy begins to shrink.
Growth Prospects
Before investing in the UK, it’s important to understand what prospects the country has for growth. The United Kingdom is one of the biggest developed economies in the world, meaning it isn’t going to enjoy the rapid expansion of GDP that could be seen in emerging markets.
It also doesn’t have the high concentrations of “unicorns” (a startup with a $1 billion valuation) or a huge tech sector like the United States.
Instead, investors can expect modest but relatively lower-risk returns. The UK’s FTSE 100 companies achieved a CAGR of around 2.6% between 1996 and 2021, while JTOPI managed 20%.
The UK is, therefore, possibly a place to make a respectable long-term investment while hedging against currency risk. Of course, there are no guarantees in investing and past performance isn’t a guarantee of future results, but if you have assets that you’d like to put to work, this may be an option worth considering.
