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Unlocking Global Opportunities – The Case for Offshore Investing in South Africa

Investing offshore has become a hot topic for South Africans, where raw emotion often supersedes the calm “light of day” logic and measured analysis required to reach sensible conclusions. While there are valid reasons to invest in both offshore and South African assets, these reasons fluctuate with changing investment environments, market dynamics, and the influence of human emotions.
It is crucial to recognise that every investor is unique, with their own set of circumstances. Therefore, applying a one-size-fits-all approach to investing is challenging and may not always be suitable. Nonetheless, I will outline five compelling reasons why I believe investors should consider having offshore investments.

1. Because we can!

For regulated funds (mainly Reg 28/Retirement funds and Collective Investment Schemes), there have been approximately 20 iterations of exchange control relaxations since 1995, just after our first democratic elections. From the introduction then of the asset swap mechanism, which allowed long-term insurance companies, retirement funds, and CISs to exchange up to 5% of total assets for foreign assets, the offshore asset allowance for institutions is now 45% of total assets on a direct basis. In addition, individuals are allowed, with the requisite SARS approval, to invest R10m offshore on a once-off basis and move R1m per annum on a discretionary basis.

2. Risk mitigation

Nobel Prize winner Harry Markowitz is quoted as saying, “Diversification is the only free lunch in investing.” This means having a number of shares and assets in your portfolio, further enhanced by spreading the geographical and sector risk. In SA, it is possible to have a portfolio of 25-30 JSE shares, the standard size of equity portfolios. However, it makes perfect sense to mix the best of SA shares with the best shares from other parts of the world to access sectors and themes that may not be available on the JSE.

3. Exposure to large world economies and markets

SA’s Gross Domestic Product is less than 0.5% of the world’s GDP, and the size of the JSE by market capitalisation is less than 1% of the investable equity universe (even with global giants such as Naspers, Anglo American, and BHP listed on the JSE). To have all your assets in this economy and market, even though the investor’s liabilities are in rand, doesn’t seem to make use of global investment opportunities as best it might.

4. Benefiting from global brands

As South Africans, we have been avid users of global products like Microsoft’s Windows and Apple’s iPhones for years. Why not capitalise on our familiarity and invest in the companies behind these brands? After all, we have contributed to their success.

5. Spreading currency risk

This is the one that fearmongers shine the spotlight on. And it is a legitimate and fundamental reason to invest offshore along a similar vein to point two. Having assets in more than one currency, particularly an Emerging Market currency, makes good sense. Because exchange controls have relaxed fairly substantially in SA, the universe has opened up and should be taken advantage of. But investors should try to dodge the emotional cyclones that sometimes engulf us and remember that when it comes to investing offshore, their portfolios have been structured with the fundamental pillars in place that we have highlighted above, not for doomsday scenarios.

It is essential to approach offshore investing with a balanced perspective, guided by logical analysis rather than emotional fluctuations. Let these compelling reasons serve as a reminder of the potential rewards that await those who venture beyond their home market.

Please get in touch with the WealthStrat team if you have any questions.