Deriving strategic investment value from offshore profits
11 Jul 2017
As South Africa recently slipped into a technical recession; local investors are concerned about weaker investment returns. Vimal Chagan, Divisional Director: Asset Management, Individual Arrangements at Liberty Group shares his views on the investment environment and what investors should consider in order to maximise their portfolios' potential.
South Africa's foreign debt has been consigned to sub-investment status and local debt is only one notch above junk. A downgrade by another rating agency on local debt will push borrowing costs in SA sharply higher, making it increasingly difficult to escape from this low-growth/recessionary trap.
Chagan says, "South Africans undoubtedly need to take advantage of global investment opportunities, sharing in the growth of the world's most profitable companies and industries, and benefiting from holding investments in strong foreign currencies."
Chagan explains that investing in only one jurisdiction – in this case, South African financial markets – could limit or even destroy value, as most sectors of the economy are operating in the same business cycle, facing similar pressures such as inflation, interest rates, currency volatility and political uncertainty. "Investors should be pursuing a strategy of global investment across a number of uncorrelated regions as this will help create value."
South Africans may already have some form of offshore investment through their accumulations in their company pension fund. "But they may want to also invest their own savings into offshore opportunities, instead of limiting them to just South African equity, bond and money markets" says Chagan.
There is no concrete rule on the percentage to invest offshore. Even though many financial pundits have bandied around the 30% to 40% level, the percentage that is invested offshore should be as a result of a robust financial plan developed by an experienced financial adviser.
Before rushing offshore, investors must understand that valuations are currently stretched. The risk of capital loss from rushed decision making is quite high. South African investors should also consider political risks, as well as tax and estate planning risks – This emphasises the importance of speaking to a financial adviser before taking decisions.
Each jurisdiction comes with benefits and risks. Chagan explains, "While the Asia-Pacific region appears to offer the best growth prospects, they are vulnerable to global capital flows. That's why I would recommend a well-diversified portfolio managed by an experienced fund manager."
Liberty's offshore endowment enables customers to invest into an endowment once they have taken funds offshore. There are a number of different investment portfolios which are available within the endowment and can be selected by the client and their adviser.
For more information please contact:
Head of Public Relations – Individual Arrangements
011 408 3690
082 417 2109