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How Safe is Investing in South Africa Right Now?

19 November 2020 AlphaWealth
Greg Strachan, Wealth Manager at AlphaWealth

Greg Strachan, Wealth Manager at AlphaWealth

Leigh Riley, Wealth Manager at AlphaWealth

Leigh Riley, Wealth Manager at AlphaWealth

The 2020 Global Wealth Migration Review cited that an estimated 4000 of South Africa’s highest nett worth individuals – worth R17 million or more – have left the country over the past ten years. Wealth migration data such as this report is said to serve as a clear indicator of the health of the economy.

However, these statistics do not necessarily mean that it is no longer safe to invest in South Africa, this according to Leigh Riley and Greg Strachan, Wealth Managers at independent advisory firm, AlphaWealth.

“The local investment landscape is shifting, but these changes should be taken in context and not seen as the ‘death spiral’ of the local economy,” Strachan explains.

These shifts present opportunities for fresh thinking and new strategies around investments.

Lowered interest rates around the globe are having a significant impact on investment strategies and Riley cautions that it’s important to be realistic about one’s returns. “Take emotion out of the equation when determining your investment strategy. Start by asking yourself, ‘what am I trying to achieve with this investment?’ Identify that objective and constantly re-evaluate your income strategies to ensure that they are aligned.”

Riley suggests clearly evaluating the opportunity, the risk, the costs involved and additional options such as diversifying offshore rather than being scaremongered into irrational decision-making. “Understanding your investment decisions and feeling comfortable with them is as important to the process as the asset allocation itself”.

Time to Diversify Your Investments?

When it comes to choosing between allocating assets locally versus offshore, there is no clear victor.

Rather than favouring one approach, it’s best to take a diversified approach to both local and global assets.

“Allocating assets both locally and abroad is a key element of portfolio construction. Whether this exposure is achieved with physical offshore assets or through locally based unit trusts is another important consideration,” says Strachan.

While some firms may recommend that a set percentage of their client’s assets to be allocated offshore, both Strachan and Riley caution that this should be determined on a client-by-client basis.

Strachan’s suggested asset allocation approach is as follows:

“I’m a firm believer in matching your assets and your liabilities in the same currency. Following this, surplus capital, or capital in excess of what is required to meet these liabilities, can then be externalised into ‘hard currency’,” he says.

“This approach ensures that the allocation to offshore assets either in hard currency or via rand-denominated offshore unit trusts is determined by the specific outcomes required for the client – rather than investing with a specific percentage in mind”.

Tips for Building a Diversified Portfolio

Riley and Strachan share a few of their practical tips for investing:

• Conduct your own research. It is easy to get caught up in the mayhem of the moment and let fear be your overwhelming guide when deciding where to put your money – don’t let that happen.
• Be wary of social media and fearmongering. Take a step back and try and understand what factors may be contributing to the situation, and if that source may be trying to further a certain agenda. This will help you to identify opportunities that others might be missing.
• Listen to the experts. Engage with industry commentators whose opinion you trust (we’d always recommend consulting a licensed financial advisor) and use their insights to make an informed decision.
• Understand your short, medium and long-term investment objectives. Investment horizons together with your objective influence the amount of risk/volatility your portfolio can withstand. This then determines how much exposure you should have to any one asset classes (of which offshore assets are classified)
• Diversify your exposure. Through both local and offshore asset allocationsyou are able to diversify your portfolio and therefore able to spread risk.
• Consider your assets objectively. Too often, we see investors making the common mistake of buying investments based on the assumption that current market conditions will continue. The market is unpredictable, don’t be swayed by past events.

Quick Polls

QUESTION

ASISA’s lobbying of the SARB to suspend Circular 15, which contained significant changes to foreign exchange controls. What is your take on this accusation?

ANSWER

[a] ASISA was right to seek clarity on Circular 15
[b] Large asset managers are conflicted & will suffer financially if Circular 15 stands
[c] Savers get enough exposure to offshore assets under existing Reg 28
[d] Who cares?
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