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Increased offshore investment allowance should encourage investors to diversify offshore

16 February 2006 Johan du Toit

South Africans should consider the opportunity provided for in the 2006/2007 National Budget, as tabled by the Minister of Finance Mr Trevor Manuel, and consider diversifying a portion of their portfolio offshore.

The individual offshore allowance will be increased from its present limit of R750 000 to R2 million per person.

Nic Andrew, head of Nedgroup Investments, says the current favourable climate provided by a strong and stable rand should encourage investors to take advantage of the extra R1.25 million that can be invested abroad.

We are of the view that, given the recent strong performance of the South African equity markets and the rand, the timing is opportune to consider investing offshore. Importantly, investing in international assets allows for far greater diversification, which is an important investment principle for reducing risk. In addition, investing in international markets provides access to countries, currencies, asset classes and industries that are not available locally, Andrew says.

We believe that a balanced investment portfolio should include international exposure. In fact, prudent portfolio management suggests that an offshore allocation will improve both the return and risk characteristics of a portfolio over the longer term. Historically this has been proven the case.

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