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One only has to look at their respective valuations against the worlds leading 1st world REITs to start asking questions. In South Africa you still have certain companies trading on historical yields below the long bond yield, history has proved this relationship should not exist and I have no doubt the necessary reversions will set in place before too long.
It wasn't along time ago when this phenomenon existed in the major REIT markets only to blow out well past the historical mean, and I mean well past.
I also get the familiar argument that the South African economy is stronger than many of the 1st world countries, which is currently reflected in the low vacancies and high (double digit) distribution growth numbers. Do not forget that the USA, Australia and other regions were also displaying similar fundamental strength preceding their respective swan dives into the abyss.
Do not be fooled by the fact that due to South Africa's relatively closed economy that it has been able to avoid much of the problems that have entwined the world financial system and in so doing buried the decoupling debate far below the average South African gold mine. Remember that SA is after all a 3rd world country with unemployment and crime at unacceptable levels. Remember that South Africa needs to export a lot of its resources to a shrinking world market, remember that South Africa's current account deficit is dependent on foreign capital inflows. Remember that South African politics is in complete disarray with alarming stories of corruption. Remember that South Africa is only able to grow its GDP in the 2 - 3% region far lower than the level needed to maintain and increase jobs. Before you get carried away with the growth story of South Africa's emerging black middle class, remember that China is growing at above 10% per annum and has a far larger emerging middle class, yet its share market is off 70% from its peak. Remember the World Cup was discounted into the share market years ago, and remember it was done so in an environment where the world traded on one of the lowest risk premiums in history. As the lustre begins to fade and the reality of the less than spectacular World Cup numbers come to pass and the many new white elephants that litter the metropolis and not the game farms, the markets may play catch up on the downside at a speed which will make the Rand's demise in 2001 a walk in the park.
So in conclusion wouldn't you prefer to own Westfield with its prime assets in Australia, UK & USA with low gearing paying a 10% dividend with muted growth if any than a Hyprop or Resilient with more debt on the balance sheet, in Africa, paying 7.5% with 10% growth for now with no real chance of maintaining this growth well into the future. (I haven't researched the numbers in the sentence above but are approximations used to illustrate my point).
At the end of the day the words used above are merely trying to explain the chart on the left which to me tells the whole story. Short South Africa and go long Australia, it is a no brainer.
