Off-shore investment is back

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By ROSS MARRINER

The swift change of leadership from Jacob Zuma to Cyril Ramaphosa as President of South Africa has brought about renewed hope and confidence in our country.  As a result, the rand has strengthened against major currencies.  After avoiding South African shares for quite some time, foreign investors are reported to be once again buying into South African companies.

Many South African investors agonise over whether they should invest offshore and, if so, when the right time would be to do so.  The events over the last few weeks have made this decision increasingly significant.  Financial commentators often point out that when the political and economic situation in the country appears to be dire and the exchange rate weakens, interest in offshore investments tends to increase.  Conversely, when the exchange rate strengthens, many South Africans often focus on local investment options, and pay less attention to offshore opportunities.

South Africa accounts for less than 1% of the global economy and restricting ourselves to local investments means that we will miss out on the opportunity to invest in some of the world’s biggest and most successful businesses and markets. By investing offshore, we are exposed to a much wider investment universe through different geographical markets and access to companies not available on the JSE such as Microsoft, Apple, Samsung, BP, Nestle and Johnson and Johnson.

The principal reason for investing a portion of your investments offshore is to achieve the benefits of diversification.  If you spread your capital across more than one type of investment, you reduce the overall risk to your portfolio, often resulting in a greater overall return.   If one component of your portfolio performs poorly over a certain period, it is often the case that another part may perform appreciatively over that same period, thereby counterbalancing the return of your total portfolio.

A further benefit of having an offshore component to your portfolio of investments is the hedging benefit that you achieve in the event of the rand weakening against hard currencies such as the US dollar.   If the rand continues to weaken, as has been the case over the past 30 years, the offshore component of your portfolio would be worth more in rand terms.

It is relatively easy to invest offshore.  The first option is to physically transfer funds offshore, where your investment will be held in hard currency.  You can transfer up to R 11 million per annum using this facility.  The second option is to invest in local asset-swap offshore investments where your investment is held in rands, but the underlying funds are invested in offshore companies.

An experienced Certified Financial Planner will be able to guide you through the process and assist you to achieve the right mix of local and offshore investments for your particular investing objectives.

Rands and Sense is a monthly column, written by

Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth.

His Financial Planning Office number is 046 622 2891

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