Eugene Botha, Deputy CIO at Momentum Investments
Some would argue that now, more than ever before, it is essential to have some, if not most of your money invested in global markets. Effective and holistic diversification is essential for South African investors and offshore markets can offer just that.
With South Africa being a mere 1% of the total global economy, offshore markets offer a myriad of different possible investments to choose from and therefore represent the perfect way to diversify your portfolio of assets and grow your wealth.
There are a couple of obvious benefits of investing offshore, of which diversification and protection from a weakening currency are probably the two most important benefits. Not only do offshore markets give your clients the opportunity to gain exposure to different geographies, industries, economies, companies, and exchange rates, but gives them the opportunity to invest into longer-term themes and growth opportunities that might not be available in the South Africa market. Elon Musk’s company SpaceX, as an example of space exploration, the Metaverse, blockchain and other technological innovations, as well as evolutionary demographics are just some of the global themes that offer long-term growth opportunities and that are often only accessible through certain offshore investments.
Including offshore strategies in your clients’ investment plans also protects them against local market and exchange rate volatility. Emerging market currencies like the rand is often vulnerable to local politics and geopolitical tensions, creating increased volatility in the returns of local companies. Hard currencies like the US dollar, British pound and the Euro are typically more stable. Having exposure to these currencies gives investors the opportunity to increase their return in rand, should the rand weaken due to extreme conditions but also through a scenario of longer-term structural rand weakening.
It is, however, important to note that investing offshore does not guarantee higher yields or returns relative to the local or other emerging markets. In fact, emerging markets often offer higher returns than developed markets, but at higher risk. Therefore, it is important to have a fair idea of the market you are entering with all its complexity to understand the risk dynamic aligned to your clients’ wealth and assets.
We believe in giving our clients and our planet a bright, secure future. Because with us, investing is personal.
Responsible Investing is one of our core beliefs. Responsible investment practices resonate directly with our outcome-based investing philosophy, and they are aligned with our clients’ long-term goals to positively influence the world they will retire to. We uphold responsible investing principles by consistently reporting back to our clients and seeking disclosure and transparency from the companies we invest in. There is no better time than now to secure a brighter tomorrow.
Because with us, investing is personal.
Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.
The world is your proverbial oyster when it comes to offshore investing and the investments are typically easily accessible. However, there are a couple of key considerations that should be considered when deciding to invest outside of South Africa. There are two investment options to consider when gaining offshore exposure. The first option is to invest directly offshore, which effectively means going through exchange control and physically transferring hard currency offshore. This will allow you to move your client’s cash and savings to an international bank account or directly into an investment in your currency of choice. This is subject to attaining a tax clearance certificate and there are certain limitations on the maximum allowable funds to take offshore. Once the money is offshore, you can buy into instruments directly or through other investment vehicles like unit trusts or exchange traded funds (ETFs).
The indirect option allows an investor to invest in foreign rand denominated funds. In this case, your client’s money never really leaves South Africa, but they gain exposure to diversified offshore markets in foreign currencies which then get converted to rands. No tax clearance is required for going the indirect route.
Deciding to invest outside of the country could be daunting due to the sheer volume of international investments available and navigating this landscape may be challenging – but the benefits truly warrant that investors take the leap. Investing is personal and how and where to invest depends on a client’s own personal circumstances and financial goals. With so many options of products, platforms, and channels, never mind the technical and legal challenges, the need for professional advice is essential.
For more information on investing offshore, visit our Global Matters portal at momentum.co.za or scan the QR code to join the Global Matters WhatsApp community easy and convenient access to regular offshore investing content such as articles, videos and other insights.
