A recent report has found that South African high-net-worth individuals substantially increased the portion of their assets allocated to equities from 23% in 2007 to 28% in 2017, with most growth in equity exposure through increased allocation to offshore markets.
David Nathanson, portfolio manager at specialist global equity investment company Bellwood Capital, says that although local political uncertainty likely played a role in the shift offshore, lower costs and improved access to equity markets also contributed significantly. “This is particularly since exchange controls have been relaxed, allowing investors to take as much as R11m per person per year offshore.”
Nathanson says having been restricted from investing offshore in the past, wealthy South Africans have the majority of their wealth concentrated in South Africa.
“They live here, work here, and own businesses here – often in addition to holding local property portfolios and even local equity portfolios. Given that South Africa represents less than 1% of the global opportunity set, it makes sense to look at the other 99%, which includes some of the best run businesses in the world.”
The AfrAsia Bank South Africa Wealth Report 2018 shows that while exposure to foreign cash, bonds and property have also grown, the majority of money being taken offshore by wealthy South Africans has been allocated to foreign equity markets.
Nathanson says this preference comes down to a matter of earning potential and practicality, for the most part. “Foreign cash earns close to nothing in interest and the yields on foreign bonds aren’t much better. While offshore property may be a fair consideration, it is far simpler to invest in and manage a foreign equity portfolio than a foreign property portfolio.”
It is also easier to achieve diversification through global equities, he says. “This is because you can invest in stocks across multiple countries, industries and currencies for the price of one property.”
Other major advantages to global equities that Nathanson mentions include liquidity and easy access to funds. “You can access all, or a part of your investment within days, and at very low cost. Properties generally take months to sell, at higher cost, and you can’t simply access a small part of their value at any time.”
Nathanson says investing offshore is not an expensive and complicated process as many believe. “Opening and managing a direct global equity portfolio can be as easy and cost-effective as opening and managing a local portfolio, when done properly. ”