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NEWS
The place to be?
Now is a good time to invest in offshore assets. Whether directly into offshore products, property etc. or indirectly through feeder funds. The reasons to invest offshore are compelling:
Valuations
Since 2000 South African domestic equities have yielded an exceptional 17% per annum, but now appear to be expensive at PE's of 18, compared to their long term average of 11½. We feel that local equities are unlikely to repeat their performance of the past 10 years.
Offshore investments whether measured in Rand or Namibian dollars or foreign currency have not performed well over the past decade with negative real returns barely preserving capital in most cases. This is because of the classic downturn experienced by global financial markets and the persistent strength of the rand.
Accessibility
The offshore markets have become more easily accessible to everyone through the introduction of investment products. Exchange Control regulations in Namibia and South Africa have also been further relaxed, increasing the allowance per family unit from R 2 million to R 4 million.
Rand Strength
The rand has rallied against the major currencies during the last 2 years (see graph below). It has gained 21.6% against the US Dollar and 24.1% against the Euro since the beginning of 2009. In real terms the rand is almost at the same level as 10 years ago. The strength of the rand is due to many reasons including foreign investment into South African equities and bonds and the weakness of the major foreign currencies. Basic economic fundamentals like the interest and inflation rate differentials alone point to the rand weakening at about 5% to 7% p.a. It is likely that the factors sustaining the strength of the rand are not sustainable and that the rand will weaken in the near future.
Diversification
Portfolio diversification is important. Global diversification offers investment protection against political, geographical and currency risks. The universe of equity investments offshore is significantly greater than the domestic investment market, potentially offering better opportunities. While every investment case is different, we suggest that investment portfolios should have some offshore exposure, somewhere between 10% and 25%, but could also be higher.
Simplicity
It is possible to invest directly offshore, where exchange control approval (and Tax Clearance) is obtained, into an array of Unit Trust products or into direct property. The second option (not utilising your offshore allowance) is to invest into an offshore Feeder Fund. Feeder funds offer the same diversification benefits, without having to go through the regulatory procedures.
Property
Pointbreak also offers the opportunity for clients to invest in property, both locally and offshore. A recent initiative has been to investigate commercial property opportunities in German capital, Berlin. Germany is the fifth largest economy in the world and was less affected by the recent economic crisis than others.
There are certainly compelling reasons and sufficient interesting opportunities to consider investing offshore.
Pointbreak is a specialist financial services company, offering solutions to the corporate, business and private wealth markets in South Africa and Namibia. In the longer term our aim is to address industry, geographical and currency risks by establishing a diversified...
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