Investing Offshore vs South Africa
"How much should I invest offshore?" is a question we are faced with every day. The answer to this is not that simple. Let's start with the basics. A South African citizen can take R10million per annum offshore – R1million as a travel allowance and the remainder after a tax clearing certificate was issued by SARS.
Without investing offshore directly, most South African retirement fund members and retirement annuity policyholders have approximately 30% of that investment in offshore assets – the maximum allowed according to regulation 28 rules. The answer, therefore, should instead focus on discretionary savings, and:
A myth is that offshore investments should focus on hedging against the rand, while nothing is said about other reasons.
Not many citizens have discretionary savings of R10million to invest long term in offshore markets, and they don't have an offshore bank account.
Once you have direct offshore investments, you must have an offshore will drawn up. Those assets are still regarded as part of your South African estate and fully taxable.
Do you foresee living offshore in future or sending children to study offshore? R10million at present is approximately $715 000 and would not help you much to make ends meet living offshore, not to say investing in property.
If you need to live off your discretionary funds, the rand's volatility over the short to medium term may cause uncertainty. The rand is trading at present stronger than 5 years ago (1 April 2016, one dollar bought R15.35), and no currency profit was made since then.
You can get 100% offshore exposure by investing in a South African registered offshore fund (rand denominated) without taking money out of the country. It is also less expensive because you don't bear currency exchange cost in your name.
So, what should be the reasons to have offshore exposure (either direct or in a local fund), which asset class to invest in and how?
Consider the following:
The JSE represents less than 1% of international stock markets. In April 2021, only 330 companies were listed on the JSE as opposed to 473 in 2003.
Naspers and Proses constitute more than 20% of the JSE, while the top 10 shares represent nearly 65% of the top 40 shares listed on the JSE.
According to an OECD report in 2019, there were approximately 41 000 listed companies in the world.
The USA have 13 stock exchanges with approximately 4 000 listed companies and more than 2000 listed in the UK.
Very few companies with a global footprint are listed in South Africa, and no Microsoft, Apple, Mastercard, Abobe, Google, Cisco and Amazon is available on our stock exchange.
The main reason to invest offshore should be to diversity your investment portfolio. In the following two tables, the performance of the JSE All Share Index is compared to global asset classes. The JSE's return for one year is impressive, but not to be fooled if looking at the same numbers on 1 January 2021 (presently measured from a very low base).
I have often heard that property (bricks and mortar) is the best investment, and yes, I agree if you have the money to invest in a Clifton beach property.
However, offshore equity seems to be the best-performing asset class in rand over 3, 5 and 10 years, according to the tabled information. The return on South African cash and bonds are still outperforming similar offshore asset classes, and therefore the focus on offshore investing should be on equity.
According to Global Finance (20 June 2021), the top 10 global companies by market capitalisation are listed in the table. Apple, Microsoft, Alphabet (Google) and Facebook are focused companies selling their products worldwide and earning annuity (ongoing) income.
In summary, ensure that you have a reasonable global exposure in your investments portfolios and be specific for what reasons. Also, remember that you invest offshore to diversity your portfolio and have a long term investment horizon.
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