Trends for offshore investing
DURBAN - Globalisation and the information age has made the world more a flexible space from an investment perspective according to FNB.
With political uncertainty continuing to dominate locally, and other emerging markets adding extra risk to local asset price returns, the case for offshore investing is a strong one.
Country specific risks are shown in all asset prices and the only way to decrease the risks rooted in any one market is to look elsewhere.
"Investors diversify to reduce the overall risk of their portfolio losing value. Because good diversifiers generally have weak, negative, or no relationship with other asset classes they may maintain or even increase in value when another asset class in the portfolio loses value or delivers low returns," says Chantal Marx, Head of research, FNB Wealth and Investments.
Marx added that often when a country risk increases, asset prices elsewhere may not respond or could even move in the opposite direction.
In December 2017, political changes locally led to a return in investor confidence in the domestic bond market while US bond yields have been crawling upward after President Trump’s was elected into office.
More recently, political unrest in Turkey and concerns over a growing trade war between the US and China has culminated in emerging market bond yields (including SA) spiking while US treasuries returned to favour for their haven appeal.
Investors no longer must do without relying on the experts to invest on their behalf when looking offshore for investment opportunities. Creating a bespoke offshore equity portfolio is now a real possibility and costs have been trending lower. Big names like Google, Amazon, Facebook and BMW can now be purchased directly.
No longer just the US
Offshore investments have generally been centred around developed markets, which makes sense, as South African asset prices correspond with emerging market asset prices, but enjoy only moderate (or even low) correlations with developed market assets.
By simply looking north of our borders, the diversification benefit will be even greater than investing in the US. The MSCI South Africa has an only 0.2 correlation with the MSCI Africa (ex-SA).
Investing in the Future as opposed to the Present
Dig a little and you can pinpoint the companies that could provide you with attractive returns according to Marx.
While this sounds good in theory, it is quite tough to self-identify the best way to benefit from changes in the way that society operates. People can consider investing in a thematic ETFs focusing on artificial intelligence, robotics, medical advances, and even just the plain old digital economy.
There are now options available to offshore investors which do not require using your yearly offshore allowance as conditioned by the SARB. South African based investors can look at inward listed shares on the JSE (like Anheuser Busch, Richemont, and British American Tobacco) or ETFs and Unit Trust Funds denominated in rand but that are investing this side of our borders.
"Offshore diversification may not provide the best returns in any one year, but it has never provided the worst." concluded Marx.