The strong Rand? And how to Invest your money offshore

Given the current flow of news in South Africa, the most popular question from investors is how much of their money should they invest offshore?

We believe that over time, investors should have a 25%-50% exposure to offshore markets, depending on their particular lifestyle and goals. These goals include factors like where you plan to live in retirement (in SA or outside of SA) and how often you travel outside of South Africa and for how long. If you plan to retire overseas, then it is both prudent and logical to hold some currency in the country where you plan to live or visit for periods of time.

Here are two articles to explain.

Investing Offshore

There are various ways to invest offshore and we can help you choose the best option and implement your choice:

1. Invest locally in Rands into offshore feeder funds.

-or-

2. Take your money out of the country and invest:

1. in a portfolio of flexible foreign unit trusts on the offshore Allan Gray platform
2. into a longer term tax and estate planning-efficient wrapper fund.

Investonline will assist you to move your money into offshore assets as well as help you to invest into the most appropriate investments to suit your needs.

The minimum offshore investment amounts are as follow:

• You can invest up to R1million per calendar year without any SARS clearance.
• If you would like to invest between R1million and R11million in a calendar year, we can assist you with obtaining the relevant SARS clearance.
• Investonline can assist with all currency conversions, SARS clearances and documentation to set up your offshore investment.

Why has the Rand Strengthened

The whole country is talking about politics and the economy. And rightfully so. Are we at a political and economic cross-road? Right now we are close, but the resolution of this may be dragged out to the 2019 election.

The impact of the uncertain political and economic environment has a direct effect on your investments, largely by way of how much offshore investment exposure your investment holds.

We have been consistently correct on the direction of the currency over the last five years, forecasting its weakening and subsequent strengthening from the beginning of 2016.

The Rand – Stronger than expected

Most local investors are surprised that the Rand has strengthened after the “shocking” dismissal of Pravin Gordhan. We wrote “Is this Zuma’s last card?” that the outcome is difficult to predict. The hand is clearly still playing out as the market, mostly foreign investors, are not fleeing the country as the Rand/Dollar continues to strengthen to below 13 to the US dollar. Why is this?

• The Rand is still fundamentally undervalued. Average purchasing power parity is around R/$ 11.
• Understanding our rating agency downgrade. A change in the local debt rating is the critical class to have a negative effect on the economy. Only Fitch has downgraded this class to junk. S&P left this class at investment grade (with a negative outlook) and Moody’s has yet to review. But Moody’s is still two levels above junk status. S&P and Moody’s both need to be at local debt junk status for there to be a major negative effect on disinvestment and hence a major slide in the Rand.
• There have been consistent inflows into global emerging markets from which SA benefits.
• Politically, SA relative to most other emerging markets, is fairly stable. Consider, Brazil, Russia, Turkey, China, South Korea and Vietnam.
• Our balance sheet – relative to other emerging markets, is fairly strong. Our major negative is that our economic growth outlook is weak.
• The SA public is fighting back politically with mass action which is showing the world we will stand up and fight for what is right. This is a major positive.
• A vote of no-confidence is still on, but an application to the constitutional court for a secret ballot is vital. We are of the opinion that if there is no secret ballot, the no-confidence vote will fail.

What do we do?

Emotions are running high for most of us.  But, we need to take a moment and reflect on the facts outlined above. The market is telling us “all is not lost” as the Rand strengthens and moves towards its fundamental value.

It is important to remember that responsible investing requires adequate diversification with the appropriate risk-profiled investment.

Our recommended portfolios have had a lower direct offshore exposure of 25% (versus high of 50%), which has benefited our investments as the Rand has strengthened.

Given the current uncertainties and positive and negatives for the currency, we believe that now is not the time to make irrational decisions, but to ensure that you have appropriate offshore exposure to suit your risk profile. We are constantly monitoring the levers affecting the Rand and when there is clearer direction we will recommend the necessary changes to investment portfolios.