More investors to head offshore with US a big draw

The perspective comes from Wehmeyer Ferreira head of db X-trackers in South Africa, product providers of a range of foreign equity linked exchange traded funds.

 

He says that the global economy showed resilience in 2013 despite the US government shutdown, political uncertainty in Italy and Cyprus, and emerging market assets underperforming, with currency down as much as 20% relative to the US dollar.

 

Deutsche Bank expects global GDP growth will continue into 2014, says Ferreira, with developed markets reducing the pace of fiscal deficit cuts, particularly in the US and EU.

 

One factor driving investors to seek offshore exposure, says Ferreira, is rand uncertainty. "We see no catalyst that might strengthen the local currency any time soon,” he notes.

 

An indication of investors’ sentiment is shown by the fact that some international funds have been closed to discretionary investments after exceeding their prudential limit in terms of foreign asset exposure. The South African Reserve Bank limits the offshore component of such funds to 35% of assets under management for CIS companies.

 

Such restrictions do not apply to the db X-trackers suite of rand-denominated, JSE-housed ETFs that track offshore market performance.

 

"Targets of choice for investors in our ETFs have been the USA and Eurozone,” says Ferreira.

 

"It should be emphasised that inflows into offshore-focused exchange traded funds are not simply a currency or equity ‘play’. Prudent portfolio diversification is also key.

 

"Statistics from the unit trust industry show its total assets top R1 trillion (excluding interest bearing funds), but just R217.6 billion goes into foreign equity markets. That’s only 21.3%. This suggests significant scope for further offshore commitments.”