Rand plummets: Now is the time to ‘think global’, investors urged

Greg Stockton, divisional manager for Africa of deVere Group.

With the rand plummeting, now is the time for investors in South Africa to think globally, affirms the Africa head of one of the world’s largest independent financial advisory organisations.

The comments from Greg Stockton, divisional manager for Africa of deVere Group, which has $10bn under advice, come as South Africa’s currency fell close to a record low a day after Finance Minister Nhlanhla Nene was removed from his position by President Jacob Zuma.

On Thursday morning, the rand fell to below 15 against the dollar and stock prices also fell on the Johannesburg Stock Exchange as trading began.

Mr Stockton observes: “The rand plummeting is, understandably, sending shockwaves across South Africa and beyond. Yet instead of a kneejerk reaction it should be used by investors as a timely reminder to perhaps consider rebalancing their portfolios.

“I would argue that what has happened, and what is still happening, should be providing an opportune wake-up call that all is not well with the South African economy - and that investors should be proactive, rather than solely reactive, to this unfolding situation.

“With all this in mind, SA-based investors must perhaps now more than ever ensure that they have a properly diversified portfolio as this will help mitigate avoidable risks and it could also mean that they benefit from opportunities that are likely to be presented.”

He continues: “Most people understand the value of having an appropriately diversified portfolio – commonly referred to as the ‘all your eggs in one basket’ theory. They understand that a mix of assets and a mix of sectors is fundamental.

“However, all too often it gets forgotten that geographical diversification is also an important tool – perhaps especially for those based in emerging markets such as South Africa.

“There is a strong home bias in South Africa, compared to investors in other countries.”

Mr Stockton goes on to say: “Yet with the economic climate in South Africa as it is, I would urge investors to consider rebalancing to increase their exposure to international stocks, bonds, and maybe property.

“The biggest single misconception is that investing globally is riskier than remaining in South Africa. In fact, the greater diversification that the investor gets from going overseas, through exposure to a greater diversification geographically and to different sectors, the greater the reduction in overall portfolio risk.

“The second misconception is that it’s for sophisticated investors. This is nonsense. There are many well-managed retail funds that offer global stock market exposure, using a wide variety of approaches. Some will simply track a global stock market index, while some will invest in so-called 'high conviction' stocks that the fund manager likes, perhaps ignoring what is in the index and what the competition is doing.”

He concludes: “Now, I would suggest, is certainly the time to think more globally.”