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Investing abroad: A world of opportunities awaits

Apr 16 2018 07:00
Brett Birkenstock

THE last few months have seen a massive positive shift for South Africa politically and economically, which has resulted in growing sentiment and a strengthening rand.

Considering this, surely it is not the time to send monies abroad? Let’s explore further…

Due to exchange controls, historical events and South African culture, we tend to be under diversified to foreign assets with mostly local property, cash and shares making up the vast amount of our estate.

Most experts suggest having at least a 20% exposure out of your country of residence, regardless of where you reside. For most South Africans, this is simply not the case.

Many people look to “win” on every transaction and chase whether it is a good time to send money abroad with global stocks or the currency.

This is not wrong in the sense that one can try secure optimal exchange rates and buying prices, but the main motivation to have offshore exposure is to diversify one’s estate and lower risk.

Generally, when all is going well with the local market and the rand is appreciating, the offshore holdings will struggle in rand terms and vice versa – in times of crisis when the rand plunges, offshore portfolios will rocket in rand terms.

Why you should take monies abroad

  • Estate diversification: As explained above. In layman’s terms, you don’t put all your eggs in one basket.
  • Offshore opportunities: The South African market is fairly small and while it does offer exposure abroad (a large section of the JSE is made up of offshore companies or companies with offshore assets), direct exposure to exciting growth areas such as India or sectors such as biotechnology are not available on the SA market.
  • Currency: While the rand is undervalued by many evaluations, this tends to be the case due to risks associated with South Africa. The current level offers a relatively good time to send monies abroad, as the local unit has strengthened from its lows seen in 2015.

The above sounds like a good idea, but remember there can also be currency and other risks associated.

How to send money abroad

How does one send monies directly abroad? Luckily this has become rather simple in recent years, due to relaxing of exchange controls.

  • Yearly foreign allowance: R1m can be sent abroad per individual per calendar year without any application. The cheapest and best route is to open a separate forex account and send the monies abroad from there. Note, this allowance does form part of your travel allowance.
  • Clearance certificate for foreign investment: This is a more complicated route and would need an application via SARS and ensuring your tax is in good standing, you can take R10m per year abroad.

How to invest your funds abroad

But what should one do with monies abroad? This would depend on many factors like your age, wealth, risk profile and time frame but generally should include more than one asset class.

It is important to have a diversified portfolio that provides both asset class and geographical diversification. The various options are:

  • Cash: Low risk but with little interest abroad; it is also a good idea to have a mix of currencies.
  • Listed property: very similar to a REIT (real estate investment trust) in South Africa; you can buy listed funds or property stocks with diversified properties in which you can possibly achieve both capital growth and income.
  • Shares: Exposure to listed companies across the world in which you can possibly achieve growth. These, besides options, derivatives and the like, are considered highest risk.
  • Bonds: Either corporate or government debt which is aimed at income with theoretically moderate risk.
  • ETFs: Exchange-traded funds are a low-cost way of tracking a particular market, index or sector.
  • Funds or unit trusts: These are combinations of all of the above for various requirements or risk profiles.

A discussion with a qualified individual as to a possible structure such as an offshore trust or pension product is well worthwhile and can possibly be beneficial. 

Once an offshore portfolio, account or structure is in place, it is also vital to discuss the tax reporting with your accountant or auditor. This change could also possibly affect your estate and possibly result in a change to your will.

Exposure abroad? A wide world of opportunities awaits!

  • Brett Johan Birkenstock is an analyst and director at Overberg Asset Management, an authorised financial service provider (No 783).

Disclaimer: The above article does not constitute financial advice and is not a recommendation. Investors must always seek the advice of professionals and trade with caution. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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