What holds South Africans back from investing offshore?

Your offshore investing questions answered by Ebeth van Heerden, Head of Intermediary South Africa, Schroders.


Think of a country’s currency as its share price. When there’s negative sentiment about a country the local currency weakens and overseas currencies become more expensive. It seems an inopportune time to sell your rands and yet many investors do just that: when the domestic currency loses values against peers, spooked investors tend to move their money abroad. Those investors who did this when the dollar was at R18 will be sitting with their heads in their hands now that it’s strengthened to R15-odd.

In short, investors tend to chase performance in currencies as they do in stock markets and this can be a damaging strategy. Often investors pursue this route because it feels “safer” or less “scary”. As with all investments, fear is never a great strategy. A sound, solid financial plan looking at all aspects of your investment goals can help you stay the course and chart the “unknown”. And if anything, this year has been a pretty stark reminder of how little control we have over predicting the future.

The level of comfort or terror you derive from watching the rand move up or down in line with most foreign currencies is part of the emotional roller-coaster that tends to follow markets, and then investors. Investing offshore, like all investment allocations, should be done in with a holistic view of your financial plan in mind.

What should I invest offshore?

How much you can invest offshore will depend very much on your financial circumstances, your risk profile and your investment horizon. Most importantly, you should consider how well your assets and liabilities match. Your assets should, for the most part, be in the same currency as your expenses.

It might be that you want to send your children to an overseas university or perhaps that you want to retire abroad. To fund these expenses, it’s a good idea to own assets in the right currency to avoid being unnecessarily impacted by unfavourable movements in the exchange rate. That’s not to say that if you plan on staying in South Africa you don’t need to be taking your money offshore. It’s completely the opposite. Given the economic backdrop in South Africa, it may well be prudent to move some of your assets overseas from a diversification point of view.

How do you genuinely assess the merits of any international market from as far away as South Africa?

Economic theory is not a perfect science. It does make some suggestions on how to think about the level of offshore exposure you need in your portfolio. In comparison to most trading partners for South Africa (Inc), we have higher inflation numbers (even at these low levels), which means we could expect our currency to depreciate over time. The fact that we’ll be importing goods in our shopping baskets at a weak or weakening currency, will over time increase inflation and the cost of living.

Common advice suggests that the first rule to wealth creation is wealth preservation – or the ability to protect the purchasing power of your money in the future. This is a more noble goal than it receives credit for – a common goal that applies to all investors.

When should I invest offshore?

The wrong time to invest offshore is when the rand is weak because one unit of foreign currency is going to cost more rands than it did before the currency weakened. Trying to time the movement of the rand, like trying to time the markets, has proven to many to be a futile undertaking.

Sure you can make an educated guess, but it’s far better to consistently move your money over time. This way your gains from exchanging at a good rate, and your losses from exchanging at a bad rate, should balance each other out. The principle remains that it’s the long-term effects that matter most and these are the most deserving of your focus and planning.

How should I invest offshore?

It can be quite overwhelming deciding where to start offshore investing, but it needn’t be. Broadly speaking, there are two approaches: the direct offshore investment using your investment allowance, or investing indirectly by accessing a fund manager’s institutional allowance.

Direct. You can convert your rands into foreign currency by physically moving your money from a South African bank account into an offshore account if you are over the age of 18 and a taxpayer in good standing. This is most suitable for investors who are happy to leave assets offshore for the long term, perhaps because they plan on a lot of international travel or they expect to incur expenses overseas.

Local funds can invest up to 30% of their assets overseas and an additional 10% across the African continent.

The South African Reserve Bank (SARB) allows individuals to take up to R1-million out of the country a year without tax clearance. A further R10-million can be moved offshore each year with the approval of the SARB and a tax clearance certificate. These funds can then be used to invest directly in offshore assets of your choosing. There’s a lot of flexibility associated with this approach and you can choose the currency you receive your proceeds in.

Indirect. The alternative is to invest in rands through:
  • A locally-administered unit trust that is mandated to invest a portion of the fund in international markets. Local funds can invest up to 30% of their assets overseas and an additional 10% across the African continent.
  • A foreign-administrated rand-denominated local unit trust that invests entirely offshore. These are known as “feeder funds”.

Both structures can give you access to international markets without physically moving your money abroad and you are not restricted by how much you can invest in the unit trust (it doesn’t count as part of your personal R11-million offshore allowance). This can be a straightforward option if you are happy that the proceeds from any divestment are paid to you in local currency again. And importantly, this route can be the most accessible way to access offshore markets as investors could start saving with R500 a month via debit order in some of these funds.

Ebeth van Heerden, Head of Intermediary South Africa, Schroders

All investors should be sure to understand the tax considerations and differentiations involved with these routes, as well as the estate planning consequences for owning assets abroad. While it is potentially simpler then you thought, we would suggest you surround yourself with trusted professionals and sound advice when drafting a financial plan, or any investment strategy.

Where should I invest offshore?

Investors can be faced with a daunting choice of offshore options.

Do you look to the well-known developed markets, where companies are potentially better recognised and understood but economic growth is subdued (with consequences for earnings potential)? Or do you look to the emerging East, where companies are perhaps less familiar but economic growth is better and earnings prospects may be brighter? How do you genuinely assess the merits of any international market from as far away as South Africa?

The best way to navigate these challenges is to partner with a seasoned international fund manager that has local presence and in-depth knowledge of the intricacies and idiosyncrasies of most global markets.

There is an increasing number of global asset managers with funds on offer in the South African market so it’s becoming easier every day for investors to invest offshore. As with most things in life, be sure you do so with the right objectives and rational reasoning. Emotions are powerful motivators, but often not the long-term investment partners you can count on.

The views and opinions contained herein are those of the author.