How to make the most of the falling rand

There are several headwinds faced by South African investors. The political uncertainty and recent handling of the finance minister wiped R150bn off banking stocks.

Overseas investor confidence has been dramatically eroded. Barclays announcement to withdraw its position in Absa [JSE:ABSP] an investors, have performed poorly.

Funds Date online shows that over the past year the Mid Cap South African (SA) Equity funds have lost 0.84% and General SA Equity Funds have lost 1.27%. When one adds the typical management fee of 1.5%, the average investor would have lost almost 3% of their funds value.

Eskom has recently announced a 9% increase in the cost of electricity. The Trading Economics website published South African annual inflation at 6.2% with food inflation at 6.9%. ECA International projects South African wage increases of 7% in 2016, however, the majority of South Africans would not have experienced these sort of salary increases.

A number of South Africans are feeling worse off due to the rising cost of living and the increasingly negative business sentiment throughout the country. The wasted billions of Rand on nuclear submarines and trains that are unsuitable for the country’s national rail services and the fact that the main trading partner, China, economic growth outlook remains sluggish.

The rand lost 25.2% against the US dollar in 2015, the third worst-performing currency among the world's 31 most-traded before gaining 0.23% this year, according to data compiled by Bloomberg.

One may feel that it is time to batten down the hatches and wait for a recovery. Investors were probably feeling the same way in April 2014 when the Rand was [ZAR 17:1 GBP] against the British Pound. Back then, it may have felt like the wrong time to invest because, only a year earlier, in April 2013 the Rand was 14:1 against the British Pound.

If one had invested R750 000 in UK property in April 2014 and purchased a property worth £44 117.65. That property with a conservative growth of only 3% per annum would now be worth £46 764.71. The typical achievable net income of 8% per annum is then added and results in an impressive 57.9% return over 2 years.

“South African investors are opening their eyes to the opportunity of purchasing UK investment property because it offers a stable political environment and currency hedge against the falling Rand” says Investment Director, Arran Kerkvliet of One Touch Property.

“We have seen a significant increase in interest from South African investors who are comfortable with the United Kingdom and like the idea of investing in hands-off property investments that generate between 8% - 10% net income” he adds.

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