Talking Offshore Investing With Louise Usher
South African equities have performed poorly this year, giving back some of the gains made in the second half of last year. Worse still, is that over the last three years local asset classes failed to deliver double-digit annualised returns – meaning that investors may have been better off in cash.
Despite this, South Africans are surprisingly reluctant to invest offshore, with over 80% of even wealthy savers said to have their investments concentrated locally.
As a result, many are missing the diversification benefits of being global investors while remaining overly exposed to the difficult South African investment environment, not to mention the country’s political risk.
Reasons Behind The Risk
Reasons behind the complexity and risks associated with local markets are many and varied. On the international front, there are concerns about the impact of trade wars and rising US interest rates on emerging markets. South Africa’s economy is struggling to gain momentum and the rand has suffered from investment outflows and policy uncertainty.
Despite the discouraging outlook, there’s a view that local equities and risk assets offer more value now than they have for some time. However, the point is that even where investors hold a positive view regarding the future performance of domestic assets, they should still incorporate offshore investments into their portfolios.
As always, investors need to keep the faith where their long-term goals are concerned, avoiding emotional short-term decisions that could compromise their financial plan. But what history has shown and recent events have confirmed is that offshore investments should play a big part in achieving those objectives.
If they don’t, there’s no time like the present for investors to review their strategy in conjunction with their wealth manager.
So, what are the benefits of investing offshore?
- Diversification: South Africa represents less than 1% of world economic activity
- Access industries that don’t exist in our local market – for example, biotech
- Our domestic market is extremely concentrated with little exposure to global industry
- Access a much wider pool of fund management talent
- What we buy and consume is global – for example, McDonalds, Zara and H&M – yet we don’t invest in these
- Our currency is extremely volatile, and often influenced by factors which have nothing to do with the local economy
- Global exposure helps hedge currency and political risk bets
IFAs To The Rescue
Because it’s simply good advice to ensure clients are diversified, astute IFAs will be able to offer their clients offshore options for inclusion in their investment portfolios.
They understand that investing only in South Africa is actually far riskier than people realise and will ensure they’re on top of the challenges that can come with investing offshore.
Challenges Needed To Be Overcome
These include the natural tendency to go with what is familiar, especially when considering the vast array of offshore options.
Other perceived barriers to entry can be high minimum investments, and the complexity of the paperwork and process. The uninitiated may also be nervous about things like probate, which is the judicial process to verify a deceased’s will should a client pass away.
Wealth managers need to deal with these challenges because the inclusion of offshore investments in clients’ portfolios constitutes sound financial planning, while steering clear of the myth that offshore investing is only for the super-wealthy.
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